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US job growth slows; unemployment rate drops to 4.3 per cent
[WASHINGTON] US job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labour market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3 per cent.
Nonfarm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the Labor Department said on Friday. The economy created 66,000 fewer jobs than previously reported in March and April.
May's job gains marked a sharp deceleration from the 181,000 monthly average over the past 12 months. Job growth is slowing as the labour market nears full employment. Last month's job gains could still be sufficient for the Federal Reserve to raise interest rates this month. "The weak job growth number isn't a disaster because it still keeps up with population growth," said Paul Diggle, senior economist at Aberdeen Asset Management. "Today's numbers probably won't stop the Fed from raising rates this month. But they might well influence what happens next." The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
The unemployment rate fell one-tenth of a per centage point to its lowest level since May 2001. It has dropped five-tenths of a per centage point this year. Last month's decline came as people left the labour force. The survey of households from which the jobless rate is derived also showed a drop in employment.
Economists polled by Reuters had forecast payrolls increasing by 185,000 jobs last month and the unemployment rate holding steady at 4.4 per cent. The closely watched employment report was released less than two weeks before the Fed's June 13-14 policy meeting.
US financial markets are almost pricing in a 25 basis point increase in the Fed's benchmark overnight interest rate at that meeting, according to CME FedWatch.
The dollar fell against a basket of currencies on the data, while US government bond prices rose. US stock index futures trimmed gains.
The modest payrolls increase could raise concerns the economy was struggling to gain speed after growth slowed in the first quarter.
Minutes of the Fed's May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, "most participants" believed "it would soon be appropriate" to raise borrowing costs.
The US central bank raised interest rates by 25 basis points in March. Data on consumer spending and manufacturing have offered hope that growth picked up early in the second quarter after gross domestic product increased at a tepid 1.2 per cent annualised rate at the start of the year.
The Atlanta Fed is forecasting GDP increasing at a 4.0 per cent pace in the second quarter.
Persistently sluggish wage growth could cast a shadow on further monetary policy tightening. Average hourly earnings rose four cents or 0.2 per cent in May after a similar gain in April.
That left the year-on-year increase in wages at 2.5 per cent.
But with the labour market expected to hit full employment this year, there is optimism that wage growth will accelerate. There is growing anecdotal evidence of companies struggling to find qualified workers.
Republican President Donald Trump, who inherited a strong job market from the Obama administration, has vowed to sharply boost economic growth and further strengthen the labour market by slashing taxes and cutting regulation.
There are, however, fears that political scandals could derail the Trump administration's economic agenda.
A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell two-tenths of a per centage point to 8.4 per cent, the lowest since November 2007.
The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell two-tenths of a per centage point to 62.7 per cent. It has rebounded from a multi-decade low of 62.4 per cent in September 2015 and economists see limited room for further gains as the pool of discouraged workers shrinks.
Manufacturing employment fell by 1,000 jobs last month as payrolls in the automobile sector dropped 1,500 amid falling sales. Ford Motor Co said last month it planned to cut 1,400 salaried jobs in North America and Asia through voluntary early retirement and other financial incentives.
Construction payrolls rose 11,000 last month. Retail employment fell 6,100, declining for a fourth straight month. Department store operators like JC Penney Co Inc, Macy's Inc and Abercrombie & Fitch are struggling against stiff competition from online retailers led by Amazon .
Government employment decreased 9,000 last month.