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 Nonfarm payrolls increased by only 38,000 jobs last month, the
smallest gain since September 2010, the Labor Department said on
Friday. Employment gains were also restrained by a month-long strike
by Verizon <VZ.N> workers, which depressed information sector
payrolls by 34,000 jobs.
Underscoring the report's weakness, employers hired 59,000 fewer
workers in March and April than previously reported. While the
unemployment rate fell three-tenths of a percentage point to 4.7
percent in May, the lowest level since November 2007, that was
because 458,000 Americans gave up the search for work.
"This is not a good report, and it may well give Fed officials
second thoughts about increasing interest rates again this month or
next, as some have suggested lately," said Peter Ireland, an
economics professor at Boston College.
The Fed has signaled its intention to raise rates soon if job gains
continue and economic data remain consistent with a pickup in growth
in the second quarter.
Fed Chair Yellen said last week that a rate increase would probably
be appropriate in the "coming months," if those conditions were met.
The U.S. central bank hiked its benchmark overnight interest rate in
December for the first time in nearly a decade.
The dollar <.DXY> tumbled against a basket of currencies on Friday
and was on track for its largest one-day percentage loss in four
months. U.S. stocks also fell, while prices for U.S. Treasuries
rose.
Financial markets largely priced out a rate increase at the Fed's
June 14-15 policy meeting after Friday's data, according to CME
Group's FedWatch program. The chance of an increase in July fell to
37 percent from about 59 percent late on Thursday.
Economists had forecast payrolls rising by 164,000 in May and the
unemployment rate falling to 4.9 percent.
The weak report bucks data on consumer spending, industrial
production and housing that have indicated the economy was gaining
momentum after growth slowed to a 0.8 percent annualized rate in the
first quarter.
In separate reports on Friday, the Commerce Department said goods
exports rebounded strongly in April and orders for manufactured
goods recorded their biggest gain in six months.
A survey by the Institute for Supply Management, however, showed a
significant cooling in services sector activity in May.
DELAYED RESPONSE
Some economists said the sharp slowdown in employment last month was
payback after unseasonably warm weather boosted hiring in February
and March. They also viewed the weak payroll growth as a delayed
response to tepid economic growth in the previous two quarters.
"The simplest explanation is that job growth tends to respond with a
lag to GDP growth, and GDP growth was rather weak around the turn of
the year. This would suggest job growth should recover along with
overall growth in economic activity," said Michael Feroli, an
economist at JPMorgan in New York.
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Despite the poor performance in May, job creation has averaged
150,000 a month this year. That is well above the 100,000 monthly
employment increase that Yellen has said is needed to keep up with
growth in the work-age population.
Last month, the goods producing sector, which includes mining, manufacturing and
construction, shed 36,000 jobs, the most since February 2010. Even excluding the
Verizon strike, payrolls would have only increased by just over 70,000.
The Verizon workers, who were considered unemployed because they did not receive
a salary during the payrolls survey week, returned to their jobs on Wednesday.
They are expected to boost June employment.
Other details of the employment report were not encouraging. Average hourly
earnings rose five cents, or 0.2 percent. That was a slide from April's 0.4
percent increase and left the year-on-year rise at 2.5 percent.
A broad measure of unemployment that includes people who want to work but have
given up searching and those working part-time because they cannot find
full-time employment held steady at 9.7 percent.
The labor force participation rate, or the share of working-age Americans who
are employed or at least looking for a job, fell 0.2 percentage point to 62.6
percent. That drop unwound about two-thirds of the rise seen between last
September and March of this year.
The weakness in the May employment data was broad-based.
The private sector added only 25,000 jobs, the smallest number since February
2010. Manufacturing employment fell by 10,000 jobs and construction payrolls
dropped by 15,000, the most since December 2013.
Mining employment maintained its downward trend, shedding 10,000 positions.
Mining payrolls have dropped by 207,000 since peaking in September 2014, with
three-quarters of the losses in support activities.
Retail payrolls rose 11,400 after losing jobs in April for the first time since
December 2014. Wholesale trade employment fell by 10,300 jobs. Temporary-help
jobs, a harbinger for future hiring, dropped by 21,000.
There were declines in utilities and transportation and warehousing employment.
Government payrolls increased by 13,000 and healthcare jobs jumped by 55,400.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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