The unemployment rate hit a 16-year low in May but the pace of hiring slowed as the economy added 138,000 jobs – well below expectations.
The Bureau of Labor Statistics announced on Friday that the unemployment rate had fallen to 4.3%, the lowest level since 2001, all but guaranteeing that the Federal Reserve will raise interest rates at its next meeting this month.
While the number of new jobs created in May was below the 180,000 that economists had been expecting, the US has now added jobs for 80 consecutive months. Wage growth, however, has remained weak and the number of people in part-time work has remained high.
Expectations for a bumper jobs report had mounted after ADP, the US’s largest private payroll processor, announced employers had added 253,000 jobs in May – well above the 180,000 economists had been expecting.
Mark Zandi, chief economist of Moody’s Analytics, said: “Job growth is rip-roaring. The current pace of job growth is nearly three times the rate necessary to absorb growth in the labor force. Increasingly, businesses’ number one challenge will be a shortage of labor.”
But the Bureau of Labor Statistics report for May fell well short of expectations and the office cut its tally of employment gains in March and April by a combined 66,000 less than previously reported.
With unemployment low and jobs growth continuing, the Fed has clearly signaled that it wants to raise rates twice more this year since raising rates in March. Officials then want to begin the process of selling off the $4.5tn portfolio of bonds and other assets the Fed built up as it fought to keep rates low and kick-start the economy after the recession.
But the fractious political landscape may derail the Fed’s plan. The White House is preparing for a fight over raising the federal debt limit and approving government funding that, if not resolved, could rock the US economy and global stock markets and cause the Fed to put its plans on hold.
The latest report once again highlighted the uneven nature of the economic recovery since the recession. The unemployment rate for whites was 3.7% in May, while the rate was 7.5% for African Americans and 5.2% for Hispanics.
Mark Hamrick, Bankrate.com’s senior economic analyst, said: “While the Federal Reserve might not be dissuaded from raising interest rates at this month’s meeting, the jobs numbers might make the debate at least more vigorous. The lack of more substantial inflation also argues against a future trajectory of aggressive rate hikes.”
