Unemployment rate falls to 3.8% as employers add 223,000 jobs in May

Paul Davidson | USA TODAY

Show Caption Hide Caption Lowe's and Home Depot plan to hire over 130,000 workers Major hiring sprees are planned in the United States for two major home improvement retailers.

U.S. hiring rebounded in May after two months of lackluster gains as employers added 223,00 jobs and the labor market continued to defy widespread worker shortages and global economic troubles.

The unemployment rate fell from 3.9% to 3.8%, an 18-year low, the Labor Department said Friday.

Economists surveyed by Bloomberg expected 190,000 job gains.

President Trump suggested the report would be strong early Friday. At 7:21 a.m., he tweeted, "Looking forward to seeing the employment numbers at 8:30 this morning." Normally a president doesn't foreshadow the totals so as not to affect financial markets.

Snowstorms and cold weather curtailed job growth in both March and April, according to Goldman Sachs. Milder temperatures were expected to bolster hiring in May.

Economists said another tepid showing could indicate that the low unemployment rate is making it even harder for employers to find workers. Also, political turmoil in Italy has roiled markets and is likely to modestly dampen economic growth in the euro area, according to Nomura. Economists thought manufacturers that depend on overseas sales could pull back on hiring in response to both the weakness abroad and U.S. trade fights with other nations.

The strong performance eases those concerns and likely solidifies another Federal Reserve interest hike in mid-June.

"The economy and labor market appear to be firing on all cylinders," says Paul Ashworth, chief U.S. Economist of Capital Economics.

Wage growth picks up

Average hourly earnings increased 8 cents to $26.92, pushing up the annual increase to 2.7% from 2.6%. Pay gains have not accelerated as much as anticipated amid the historically low jobless rate. Still, other measures of wages have revealed faster advances, and many economists expect Labor’s monthly reading to pick up to 3% by the end of the year.

The 2.7% rise in May was in line with the moderate salary increases investors are seeking that lift household income without feeding concerns about faster inflation that prompts the Federal Reserve to raise interest rates more rapidly.

Measurement quirks may also skew wage figures. For example, Labor’s May employment survey was conducted early in the month, and that timing tends to understate wage growth, according to Goldman Sachs.

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Industries that are hiring

Employment gains were broad-based as the private sector added 218,000 jobs and federal, state and local governments added 5000.

Education and health care led the gains with 39,000. Retailers added 32,000 jobs; professional and business services, 31,000; and leisure and hospitality, 21,000.

Construction added a healthy 25,000 jobs as the spring home building season got underway. And manufacturers added 18,000 jobs despite jitters over trade and the political crisis in Italy.

Unemployment plunges for less educated

While the jobless rate fell for people of all educational backgrounds, it tumbled more dramatically for those without bachelor’s degrees. The rate plummeted from 5.9% to 5.4% for those with less than a high school diploma, from 4.3% to 3.9% for people with only a high school diploma, and from 3.5% to 3.2% for those with some college or an associates degree.

For Americans with a bachelor’s or higher, unemployment dipped from 2.1% to 2%.

As employers increasingly struggle to find workers, they’ve become more willing to bring on people with less education and skills, who are typically available in greater numbers, and then train them to fill in any gaps in qualifications.

What it means

The report was encouraging all around, with strong job gains, unemployment falling to the lowest level since April 2000 and wage growth picking up moderately. What’s more, payroll increases for March and April were revised up by a total 15,000.

Monthly job growth has averaged 207,000 so far this year, up from 182,000 in 2017. That’s not likely to last, economists say, because the low unemployment rate will make it increasingly challenging for employers to find workers.

Some analysts say the strong report increases the odds that the Fed will hike rates four times this year rather than the three that central bank policymakers forecast. But Leslie Preston, senior economist of TD Economics, says the risk that further U.S. trade skirmishes will hobble the economy could keep the Fed from lifting rates more aggressively.