U.S. job growth slows;
unemployment rate drops to 4.3 percent
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[June 02, 2017]
By Lucia Mutikani
WASHINGTON
(Reuters) - U.S. job growth slowed in May and employment gains in the
prior two months were not as strong as previously reported, suggesting
the labor market was losing momentum despite the unemployment rate
falling to a 16-year low of 4.3 percent.
Nonfarm payrolls increased 138,000 last month as the manufacturing,
government and retail sectors lost jobs, the Labor Department said on
Friday. March and April data was revised to show 66,000 fewer jobs
created than previously reported. May's job gains marked a sharp
deceleration from the 181,000 monthly average over the past 12 months.
While last month's job gains could still be sufficient for the Federal
Reserve to raise interest rates this month, the modest increase could
raise concerns about the economy's health after growth slowed in the
first quarter.
The economy needs to create 75,000 to 100,000 jobs per month to keep up
with growth in the working-age population. Job gains are slowing as the
labor market nears full employment.
The unemployment rate fell one-tenth of a percentage point to its lowest
level since May 2001. It has dropped five-tenths of a percentage point
this year. Last month's drop came as people left the labor force. The
smaller and more volatile survey of households also showed a drop in
employment.
The closely watched employment report was released less than two weeks
before the Fed's June 13-14 policy meeting.
Economists polled by Reuters had forecast payrolls increasing by 185,000
jobs last month and the unemployment rate holding steady at 4.4 percent.
Prior to the report, U.S. financial markets had almost priced in a 25
basis points increase in the Fed's benchmark overnight interest rate
this month, according to CME FedWatch.
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 U.S. central bank raised interest rates by 25 basis points in March.
Data on consumer spending and manufacturing suggest the economy gained
speed early in the second quarter after gross domestic product increased
at a tepid 1.2 percent annualized rate at the start of the year.
The Atlanta Fed is forecasting GDP increasing at a 4.0 percent pace in
the second quarter.
But persistently sluggish wage growth could cast a shadow on further
monetary policy tightening. Average hourly earnings rose four cents or
0.2 percent in May after a similar gain in April.
That left the year-on-year increase in wages at 2.5 percent.
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People wait in line to
attend TechFair LA, a technology job fair, in Los Angeles,
California, U.S. on January 26, 2017. REUTERS/Lucy Nicholson/File
Photo
The tepid average hourly earnings reading comes as annual inflation
rates have retreated in recent months. But with the labor market
expected to hit full employment this year, there is optimism that wage
growth will accelerate.
SKILLS SHORTAGE
There is growing anecdotal evidence of companies struggling to find
qualified workers. The Fed in its Beige Book on Wednesday said a
manufacturing firm in the Chicago district reported raising wages for
unskilled laborers by 10 percent to attract better-quality workers and
retain its workforce.
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 labor market by slashing taxes and
cutting regulation.
There are, however, fears that political scandals could derail the Trump
administration's economic agenda.
The labor 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 percentage point to 62.7 percent. It has rebounded from
a multi-decade low of 62.4 percent 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 <F.N>
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 J.C. Penney Co Inc <JCP.N>, Macy's Inc <M.N> and Abercrombie &
Fitch <ANF.N> are struggling against stiff competition from online
retailers led by Amazon <AMZN.O>.
Government employment decreased 9,000 last month.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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