Just 38K New April Jobs; Rate Hike Prospects Sink

Just 38K New April Jobs; Rate Hike Prospects Sink

Unemployment rate falls to 4.7% as fewer look for work.

Reviewed by: Lucia Mutikani
Edited by: Lucia Mutikani

Washington (Reuters) – The U.S. economy created the fewest number of jobs in more than five years in May, hurt by a strike by Verizon workers and a fall in goods-producing employment, pointing to labor market weakness that could make it difficult for the Federal Reserve to raise interest rates.

Nonfarm payrolls increased by only 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday. Employers hired 59,000 fewer workers in March and April. The government said the month-long Verizon strike had depressed employment growth by 34,000 jobs.

The goods-producing sector, which includes mining and manufacturing, shed 36,000 jobs, the most since February 2010.

Even without the Verizon strike, payrolls would have increased by a mere 72,000.

Verizon Strike Weighed On Number

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.

The jobless rate fell three-tenths of a percentage point to 4.7% in May, the lowest since November 2007. The decrease in the unemployment rate was in part due to people dropping out of the labor force.

Economists polled by Reuters had forecast payrolls rising 164,000 in May and the unemployment rate falling to 4.9%.

Fed Chair Janet Yellen has said monthly gains of roughly 100,000 jobs are needed to keep up with growth in the work-age population.

Job Gains Key To Fed Decision

The U.S. Central Bank has signaled its intention to raise rates soon if job gains continued and economic data remained consistent with a pickup in growth in the second quarter.

Yellen said last week that a rate increase would probably be appropriate in the "coming months," if those conditions were met. Data on consumer spending, industrial production, goods exports and housing have suggested the economy is gathering speed after growth slowed to a 0.8% annualized rate in the first quarter.

The Fed hiked its benchmark overnight interest rate in December for the first time in nearly a decade.

No Wage Growth

There is still no sign of meaningful wage growth. Average hourly earnings rose 5 cents, or 0.2%, last month.

That kept the year-on-year rise at 2.5%.

Economists say wage growth of between 3.0% and 3.5% is needed to lift inflation to the Fed's 2.0% target. There are, however, signs that inflation is creeping higher as the dampening effects of the dollar's past rally and the oil price plunge dissipate.

There was little change in other measures of labor market slack. 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% in May.

Labor Force Participation Rate Fell

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 points to 62.6%.

The gains in May were broadly weak, with the private sector adding only 25,000 jobs, the smallest since February 2010.

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.

Manufacturing employment fell by 10,000 jobs. The Verizon labor dispute reduced information sector jobs by 34,000.

Retail payrolls rose 11,400 after shedding jobs in April for the first time since December 2014. Temporary help jobs fell 21,000.