U.S. employers created 175,00 jobs in May, the Labor Department said Friday, sharply higher than April's revised employment numbers and many analysts expected. Still, the number means the nation faces years before employment returns to pre-recession levels and focuses attention on the possibility the Federal Reserve will taper its unprecedented bond-buying program.
Analysts polled by Thomson Reuters I/B/E/S had expected, on average, 170,000 jobs to be created last month. In April 149,000 jobs were created.
Both the number of unemployed people, at 11.8 million, and the unemployment rate, at 7.6 percent, were essentially unchanged.
The number of long-term unemployed, those without work for 27 weeks or longer, was unchanged at 4.4 million. These individuals accounted for 37.3 percent of the unemployed. Over the past 12 months, the number of long-term unemployed workers has declined by 1 million, the Labor Department said.
The civilian labor force rose by 420,000 to 155.7 million in May; however, the labor force participation rate was little changed at 63.4 percent. Over the year, the labor force participation rate has declined by 0.4 percentage points. The employment-population ratio was unchanged in May at 58.6 percent and has shown little movement, on net, over the past year.
“The fact that 175,000 is right in line with the rate of growth we’ve seen over the last year highlights the fact that the slog continues," said Heidi Shierholz, economist with the Economic Policy Institute. "This is just enough jobs to hang on. We’re really not deteriorating; but it means we are just not seeing job growth that is fast enough to dig us out of this hole. At this rate of job growth it will take six years to get back to full employment.”
That view is generally shared by Robert C. King, economist with the Jerome Levy Forecasting Center.
“I didn’t see evidence here of any real acceleration in the economy. The private economy in particular is a little more fragile than generally known,” he said. “There is just as much likelihood of slowdown in payroll growth as of an acceleration in the second half of the year. I think generally the economy is not out of the woods yet, because of austerity, and we’re waiting to see how households deal with weaker income.”
Steve Blitz, chief economist for ITG, offered a somewhat more upbeat assessment.
“I think it puts to rest the notion that the economy is going into a swoon as it did last year this time,” Blitz said. “It’s still disappointing in terms of the rate at which new jobs are being created. But there is a clear upturn in hours worked, upturn in people looking for work. So if you look at it from the point of view of direction -- not overall level -- the glass is half-full. It shows that we are improving from the level we have been at over the last few months. It certainly shows the economy is not shrinking and on some sort of growth path.”
Both Blitz and Paul Dales, chief U.S. economist for Capital Economics said the May jobs report keeps alive the possibility the Federal Reserve will proceed with a slow reduction in its third-round of monetary easing policy, also known as "quantitative easing" or QE3. The latest round of that initiative, which began last September, aims to sharply lower long-term interest rates in the hope of stimulating business activity and, thus, job creation.
“We think this leaves the Fed on track to taper QE3 later this year. May’s gain was better than April’s 149,000 rise (revised down from 165,000) and takes jobs growth a bit closer to the monthly average of 200,000 seen in the previous six months,” said Dales.
“The weak tone of the recent survey evidence suggests payrolls may weaken a bit in the coming months. But we don’t think it will be long before they return to gains of around 180,000 a month. If that is the case by the time the Fed meets in September, then it will probably trim the pace of its monthly asset purchases.”
Before the May report, analysts had offered an unusually diverse array of estimates about what the government's May jobs report would show, reflecting how difficult it is to gauge the actual state of an economy where the stock market is setting record highs and housing is recovering, yet businesses still sit on hundreds of billions in cash (rather than invest the money in manufacturing).
Switzerland’s UBS AG estimated that 200,000 jobs were created in May, and that would be a drop in the unemployment rate to 7.4 percent from April’s 7.5 percent, while Deutsche Bank had estimated only 125,000.
ITG Investment Research, which had forecast that 175,000 jobs would be created in May, said earlier this week that its estimate reflected a “strong upturn in late May Internet job postings [that] recaptures some lost seasonal gains that occurred in April,” Steve Blitz, ITG’s chief economist, said in a note. “If gains don’t show up in May, they will likely arrive in June.”
Deutsche Bank cited seasonal factors for its relatively low estimate of May job creation but stressed that its overall view of U.S. job creation is upbeat. “Over the last three Mays, private payroll gains averaged just plus 69,000,” said Joseph A. LaVorgna, chief U.S. economist at Deutsche Bank.
“However, these figures were subsequently revised higher in each case by an average of 77,000. Given the general propensity to revise employment higher -- it has happened about three-quarters of the time since January 2011 -- softer than expected employment should be discounted. Indeed, sustained sub-350,000 readings on initial jobless claims have always been associated with large gains in nonfarm payrolls well in excess of 200,000. Jobless claims have averaged 352,000 year-to-date, so the health of the labor market is definitely getting better because lower layoffs have always translated into faster hiring.”
Several reports earlier this week signaled that the May jobs report would be weak. Both the ISM manufacturing and non-manufacturing reports for May showed a decline in the rate at which employment in the sector was growing. More ominously, the ADP jobs report for May came in at 135,000, far beneath the 157,000 to 165,000 that Wall Street was expecting. ADP said that 6,000 manufacturing jobs were lost last month.
Mark Zandi, chief economist of Moody’s Analytics, said a weak May jobs report could be laid at the feet of “significant fiscal drag from tax increases and government spending cuts.”