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U.S. economy back on track with 280K jobs

U.S. economy  back on track  with 280K jobs
Business
A window washer cleans the windows of an office building in downtown Washington on Apr. 23, 2015 file photo, . The U.S. government issues the May jobs report on June 5, 2015. (AP / Pablo Martinez Monsivais)

Josh Boak, The Associated Press

Published Friday, June 5, 2015 9:27AM EDT

WASHINGTON -- U.S. employers added a robust 280,000 jobs in May, showing that the economy has regained momentum after starting 2015 in a deep slump.

The unemployment rate ticked up to 5.5 per cent from 5.4 per cent in April, the government said Friday. But that occurred for a good reason: Hundreds of thousands more people began seeking jobs in May. Not all of them found work and so were counted as unemployed.

Last month s strong job growth suggests that employers remained confident enough to keep hiring even after the economy shrank during the first three months of the year. The government also revised up its estimate of job growth during March and April by a combined net 32,000.

The steady hiring should help drive the economy through the rest of the year.

"We ve restored income for well over 3 million people over the past 12 months, and that s adding a lot of spending power to the economy," said Carl Tannenbaum, an economist at Northern Trust.

The rise in the number of people looking for work also sounded a collective note of confidence, Tannenbaum suggested.

"That suggests that those who have been on the fringes of the job market are seeing opportunities," Tannenbaum said.

Construction, health care and hospitality companies drove the May job growth. On the negative side, persistently cheaper oil led energy companies to shed workers for a fifth straight month.

Average hourly wages rose 2.3 per cent from a year earlier, showing some pick-up. Even so, pay is barely rising above inflation, a persistent trend that has limited the economy s growth.

Over the past three months, employers have added an average of 207,000 jobs. That s a decent gain, though lower than last year s average of 263,667.

Prices for the benchmark 10-year Treasury note fell after the jobs report was issued, raising its yield to 2.42 per cent from 2.35 per cent just before the figures were announced. U.S. stock futures held steady.

Federal Reserve Chair Janet Yellen has said she expects the Fed to raise rates this year if the economy continues to improve, thereby ending nearly seven years of record-low rates. On Thursday, though, the International Monetary Fund suggested that the Fed should hold off on raising rates until 2016. IMF Managing Director Christine Lagarde, saying a rate increase could disrupt the economy, urged the Fed to await signs of healthy wage growth.

"This evident strength in the labour market probably isn t enough to persuade the Fed to hike rates by July, but it definitely makes a rate cut by September probable," said Paul Ashworth, chief U.S. economist at Capital Economics. "Only 24 hours later, the IMF s suggestion that the Fed should wait until 2016 looks very dated."

Though employers continue to hire freely, consumers -- the main engine of the U.S. economy -- remain fairly cautious. Still, Friday s solid jobs report confirms the economy s vitality.

The 3 million new paychecks added over the past year have helped raise spending on housing and autos. Sales of newly built homes have surged 23.7 per cent through the first four months of 2015 compared with a year ago, government data show. Rising demand for new homes led construction firms to hire 17,000 workers in May.

Americans bought 1.64 million vehicles in May, the most since July 2005. Manufacturers added 7,000 jobs last month, primarily in the auto sector.

Retailers added 31,400 employees, health care companies 57,700. The leisure and hospitality industry, which includes restaurants, added 57,000.

The weekly number of people applying for unemployment benefits -- a proxy for layoffs -- has remained under a historically low 300,000 for more than four months. By holding on to nearly all their workers, businesses are ensuring that they will have the capacity to respond to greater customer demand.

But the economy faces other challenges. The dollar has appreciated about 19 per cent in the past year against other major currencies. That trend has made U.S. goods costlier overseas, thereby squeezing exports and the U.S.-based branches of foreign companies.

Nor has cheaper gasoline delivered much help. Instead of sparking the wave of consumer spending that many economists had expected, a nearly 45 per cent drop in oil prices since July has damaged a U.S. economy increasingly reliant on energy drilling. The energy industry has let go of workers and cut orders for pipelines and equipment.

The mining sector, which includes oil and gas, trimmed 17,200 workers from their payrolls last month.

Falling unemployment usually leads to fewer people seeking work, forcing employers to boost wages. But plenty of people are still searching for jobs. The aftermath of the recession has left 8.5 million people unemployed and seeking work, about 1.3 million more than were jobless before the downturn began in late 2007.

Companies often increase pay when their workers become more productive. Yet productivity fell at a 3.1 per cent annual rate in the first quarter -- a sharper drop than the decline estimated a month ago, the government said Thursday.
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