Smallest Job Growth in 5 Years May Pause Fed Rate Hike Plans

Jun 3, 2016

Leading econ indices May 2016Employment numbers from the Department of Labor this morning are a shocker. Far from the 155,000 new jobs economists expected were created in May, the government said only 38,000 new workers were added.

The monthly report from the department’s Bureau of Labor Statistics also revised downward the reports for March and April by a combined 59,000.

Even what should have been good news — that the unemployment rate fell to 4.7%, the lowest since November 2007 — was tempered by a second month of decline in the number of Americans participating in the labor force. On a seasonally adjusted basis, the BLS says the participation rate fell to 62.6% in May, near a 40 year low. Declines in the size of the labor force lower the unemployment rate.

Wage increases too fell. The government said the average hourly wage for all employees on private nonfarm payrolls rose by 5 cents to $25.59. In April, the increase was 9 cents. That works out to an annual increase of 2.5%.

The report sent stocks lower in the U.S. and elsewhere in the world.

An economist contacted by The New York Times called the report “ugly.” “The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause,” said Diane Swonk, an independent economist in Chicago.

The Federal Reserve is scheduled to meet later this month to discuss raising interest rates. Many economists were expecting the Fed to up the current rate of 0.5%, but with today’s jobs report, a change may be put on hold.

The report showed weakness in nearly all sectors. Only jobs in healthcare, professional and technical services and in bars and restaurants showed any significant increase; the former by 45,700 with 23,500 coming in ambulatory health care services and 16,500 new jobs in hospitals. Bars and restaurants added 22,200 workers.

Professional and technical services, which includes management consulting, computer design, accounting and similar services, added 25,800 jobs.

The Federal government added 12,000 new jobs, most of them in the post office.

Telecommunications lost 37,200 jobs, but that was an aberration caused by the Verizon strike. Strikers are counted as unemployed and the vacant jobs counted as lost positions. However, even adding them back into the count would still have made May the slowest growth month for employment since January 2011.

The biggest losers:

  • Temporary help services -21,000
  • Wholesale trade -10,300
  • Construction -15,000
  • Mining, mostly in the oil and gas industry, – 11,000
  • Manufacturing -10,000