The US economy added 223,000 jobs last month and the unemployment rate fell to a post-recession low of 3.8 percent, the latest jobs report from the Bureau of Labor Statistics showed on Friday. May continued the US labor market’s growth streak into its 92nd month, the longest such expansion in history. New jobs numbers were also revised upward by a total of 15,000 for the preceding two months, to 159,000 jobs in April and 155,000 in March. Retail, health care, and construction were the leading sectors adding jobs last month.
Compared to the previous year, the unemployment rate was half a percentage point lower in May, with the total number of unemployed persons reduced by 772,000. The number of long-term unemployed was little changed from April to May, standing at 1.2 million, but this figure had also declined by 476,000 over the past year. Underemployment remains an issue, with 4.9 million US workers working part-time who would prefer to be working full-time.
In the first five months of 2018, the workforce has grown by an average of 207,000 jobs per month, the Wall Street Journal adds, beating the average monthly growth of 182,000 in 2017. May’s numbers exceeded the expectations of economists surveyed by the Journal, who had expected 190,000 new jobs and a 3.9 percent unemployment rate. The last time the US recorded a 3.8 percent rate was in April 2000, and the last time before that was in 1969. The falling rate reflects a mix of positive and negative developments, however, as the labor force participation rate ticked down from 62.8 to 62.7 percent and the number of people not in the labor force increased by about 170,000.
Wage growth remains real the sticking point in the US labor market. Average hourly earnings in the private sector rose by 8 cents last month, to $26.92, for a year-over year increase of 71 cents or 2.7 percent. This increase represents a slight improvement over the persistent stagnation in wages in the years following the recession, but annual wage growth has not cracked the 3 percent mark since 2009.
Economists would expect to see much higher numbers in such a tight labor market. Nonetheless, the jobs numbers are unlikely to change the Federal Reserve’s plans to raise its benchmark interest rate later this month, the Journal notes, given the historically low unemployment rate and that consumer inflation has reached the bank’s annual target of 2 percent.
In its reporting, the New York Times observes that many of last month’s gains “were centered in the kind of deeply cyclical sectors that tend to perform best late in the economic cycle,” such as manufacturing and transportation. The economy continues to defy expectations by adding jobs at a steady clip despite the low unemployment rate, but Michael Gapen, chief United States economist at Barclays, tells the Times that he thinks the momentum will continue, predicting that the unemployment rate could fall to as low as 3 percent by the end of 2019.
The tight labor market is having different effects on different employers depending on their size and recruiting resources, however. On Thursday, Bloomberg’s Sho Chandra looked at the unique hiring challenges facing smaller firms, many of which are feeling squeezed by a shortage of talent and the ability of larger organizations to outcompete them in the labor market. ADP Research Institute’s monthly data, released on Wednesday, showed that small firms were hiring at a slower pace than large corporations, while a report issued Thursday from the National Federation of Independent Business found that around 23 percent of small firms considered finding qualified workers their single most important business problem—the highest percentage since 2000.
These labor market challenges, Chandra wrote, are inspiring small firms to get creative with their attraction strategies, offering increased flexibility, part-time and work-from-home options, as well as the same kinds of innovative benefits their larger peers are introducing, like student loan assistance. Small firms are also raising wages to the extent they can afford to. Nonetheless, they don’t have the same ability to offer highly competitive compensation and benefits packages as big companies do. Analysts tell Chandra that the slowdown in hiring among smaller firms is consistent with late-stage expansion and may be a sign that the business cycle is turning.