Hiring dropped sharply in May, the weakest in 6 years; unemployment rate fell to 4.7 percent
The Washington Post
WASHINGTON — The U.S. job market slowed dramatically in May, according to government data released Friday, adding just 38,000 jobs despite other signs that the economy was picking up steam after a weak start to the year.
Job growth in May was the weakest since 2010, when the country was still clawing back from the Great Recession and thousands of workers were joining the ranks of the unemployed. The Labor Department also lowered its estimate of hiring in March and April by 59,000 jobs.
In addition, the unemployment rate fell from 5 percent to 4.7 percent, though the decline was primarily due to a contraction in the labor force.
“This just does not square with all the other things we’re seeing in the economy,” said Gus Faucher, chief economist at PNC Financial Services Group. “This is no reason to panic, and I still think the fundamentals remain solid.”
The weak numbers spooked investors on Wall Street. All the major indices were down in morning trading. The blue-chip Dow Jones industrial average dropped 109 points, or 0.6 percent. The broader Standard & Poor’s 500-stock index fell 15 points, or 0.7 percent, while the tech-heavy Nasdaq declined 46 points, or 0.9 percent.
Estimates of overall economic growth this spring range from 2.5 to 3 percent, substantially higher than the 0.8 percent pace this winter as the slowdown in China, plunging oil prices and a strong dollar crimped exports and business investment and rattled financial markets around the globe. The United States’ recovery appears to have pulled through the turmoil, but the disappointing jobs report suggests it was left with some scars.
That could sway the timing of the Federal Reserve’s next hike in interest rates. The nation’s central bank began pulling back its support for the economy at the end of last year when it raised rates for the first time in nearly a decade. Officials will meet later this month to debate whether to do so again.
The slowdown in hiring could bolster the case for waiting. The decision was already a close call because of the upcoming vote in Britain over whether to remain in the European Union. The uncertainty over the referendum – three weeks away – has already caused sharp swings in the British pound, and investors are bracing themselves for volatility in the run-up to the vote. If Britain does opt out of the 28-nation club, the move could spark political contagion across Europe and cause major disruptions in trade and financial markets.
But even if the so-called Brexit is rejected, key Fed officials have begun to question whether another hike is necessary soon. In a speech in London early Friday morning, Chicago Fed President Charles Evans said the U.S. recovery still faces substantial risks, including unexpected strength in the dollar and turbulence in financial markets that could force businesses and consumers to rein in their spending. Meanwhile, inflation has been running below the Fed’s target of 2 percent.
Evans suggested the central bank may need to wait until inflation hits the Fed’s goal before raising rates and argued that it has few tools to counter another economic slump. The central bank will also meet in July and September.
“Policy is much better positioned to counter unexpected strength than to address downside shocks,” Evans said.
Speaking a day earlier on Bloomberg TV, Fed Governor Daniel Tarullo said he is looking for “an affirmative reason to move.” Tarullo has been among the most cautious Fed officials and previously advocated waiting until this year to raise rates, rather than starting in December.
Economists have been warning that job growth would likely slow down as the labor market healed. The unemployment rate has now fallen by more than half since peaking at 10 percent following the recession. Only about 100,000 jobs need to be added each month to hold the jobless rate steady, compared to about 200,000 a few years ago.
Yet Friday’s report fell far short of that lower bar, and analysts had been anticipating solid growth of 160,000 jobs. Part of the miss was due to 34,000 Verizon workers who were on strike when the government was compiling its numbers. But the real culprit was simply a lack of desire among employers for new workers.
Professional and business services added just 10,000 jobs last month after bringing on 55,000 in April. Retail, a stalwart of growth, was flat. The mining and manufacturing industries together shed 21,000 jobs. Meanwhile, there was a jump in the number of people working part time who would prefer full-time jobs.
The one bright spot in Friday’s report was wages: Average hourly earnings rose 5 cents to $25.59 in May and are up 2.5 percent over the past year.
“In the words of a wise old economist, the numbers are what the numbers are,” said Richard Moody, chief economist at Regions Financial. “The problem today is we simply do not know what to make of them.”
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