Broad-based and stronger than expected, hiring by employers in May should put to rest any concern about sluggish U.S. economic growth and the potential for a slide into recession.
The U.S. economy added a very solid 280,000 jobs last month, the Labor Department reported Friday, soaring past the 225,000 projected by mainstream economic forecasters.
Hiring was positive across all major sectors of the economy and the unemployment rate ticked up a hair to 5.5 percent as more people returned to the labor market in search of work.
The strong hiring followed last month’s revision of first-quarter growth numbers, which showed the economy shrank at annual rate of 0.7 percent from January through March. The weak read of gross domestic product, the sum of U.S. goods and services, prompted concerns about a looming recession.
“Any worries about the economy’s strength given the decline in GDP in the first quarter should be allayed with today’s strong job numbers,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “Abstracting from the vagaries of the data, monthly job growth remains near 250,000 per month (over the past year). This is double the pace necessary to absorb the growth in the working age population.”
The White House quickly cheered the strongest jobs report of 2015.
“I feel good about these numbers,” Jason Furman, head of the White House Council of Economic Advisors, said on CNBC shortly after the jobs report came out.
In his White House blog, Furman noted the economy added 3 million new jobs over the past 12 months, “nearly the fastest pace in more than a decade.”
A solid half-year of hiring and building wage pressures increase the likelihood that the Federal Reserve hikes interest rates this year, perhaps in September. The Fed’s benchmark interest rate influences borrowing costs across the economy. It’s been anchored at near zero since December 2008.
Friday’s report also confirmed that measures of underemployment in the economy are slowly improving. The number of discouraged workers is down over the past year, as is the number of people ending temporary employment.
The so-called unofficial unemployment rate, an alternative measure that includes people hovering just outside the labor force and part-time workers who want full-time work, is now at 10.8 percent. In May 2014 it was 11.7 percent, falling almost a full percentage point in one year.
“The only blemish in the job market is the loss of energy-related jobs resulting from the collapse in oil prices. The good news is that these job losses should wind down by the fall,” said Zandi, adding that the “U.S. job juggernaut is back into high gear. It would take a lot to derail it.”
Companies involved in oil and natural gas extraction shed 17,200 jobs in May. Another 16,900 jobs were lost last month in services that support oil and natural gas activities.
The better-paying professional and business services sector led the pack with 63,000 new jobs, closely followed by the leisure and hospitality sector at 57,000. It suggests that consumers and employees are traveling more and loosening the purse strings.
Retailers added 31,400 new jobs last month, continuing a steady climb over the year.
“Gains in all key business lines in May,” said Jack Kleinhenz, chief economist for the National Retail Federation, who thinks a pickup in the housing market may be driving some retail spending. “Gains in electronics and appliances along with furniture and furnishing and building materials may reflect stronger housing market spending on new and existing home sales.”
Manufacturing added just 7,000 new jobs in May. It faces strong headwinds from a U.S. dollar that has appreciated against the world’s major currencies. The strong dollar makes U.S. goods and services more expensive overseas.
“I expect manufacturing employment to grow to at least 12.4 million by the end of the year,” said Chad Moutray, chief economist for the National Association of Manufacturers. “That would imply hiring of around 15,000 workers per month in the manufacturing sector, closer to the pace observed in all of 2014.”
Average hourly earnings rose by 0.3 percent rise in May. Over the past 12 months, worker wages, as measured by the Bureau of Labor Statistics, have risen 2.3 percent. That’s faster than the rate of inflation, and while not sizzling is healthy.
“Although these data are noisy, we think the combination of a slightly higher trend in average hourly earnings and notable improvement in the employment cost index (ECI) reveals wage pressure is building,” Michelle Meyer, U.S. economist for Bank of America Merrill Lynch, said in a note to investors.
MAY BY THE NUMBERS:
Professional and business services, up 63,000
Manufacturing, up 7,000
Retail, up 31,400
Leisure and hospitality up 57,000
Health care, up 46,800
Finance, up 13,000
Construction, up 17,000
Temporary help services, up 20,100
Transportation and warehousing up 13,100
Government, up 18,000
Source: U.S. Labor Department