WASHINGTON (MarketWatch) — Companies hired more workers in May than in April, a sign the U.S. is still expanding at a solid pace despite headwinds of higher taxes, federal spending cuts and a soft global economy.

The U.S. created a net 175,000 jobs in May, all of them in the private sector, the Labor Department said Friday. The increase exceeded the 164,000 forecast of economists polled by MarketWatch.

The unemployment rate edged up to 7.6% from 7.5% as more people entered the labor force in search of work.

The size of the labor force surged by 420,000, pushing up the civilian participation rate for the first time since October to 63.4%.That’s a good sign over the long run because it means job-seekers think more work is available. Read more about labor force participation rate.

Yet the unemployment rate is an even larger 13.8% — down from 13.9% in April — if everyone who wants a full-time job but can’t find one is included. Millions of Americans still cannot find work nearly four years after the recession ended.

A job seeker shakes hands with a recruiter during the San Francisco Hirevent job fair Getty Images

U.S. stocks closed with strong gains, as the Dow Jones Industrial Average DXY, -0.35% advanced more than 200 points after the employment report.Read Market Snapshot. The U.S. dollar also advanced.

The steady pace of hiring leaves it unclear whether the Federal Reserve will throttle back on a massive bond-buying strategy meant to generate faster U.S. growth. Stock and bond markets have suffered lately from increasing worries that the central bank is about to start scaling back its bond purchases. Read reactions to jobs report.

The Fed has hinted it will start to curtail purchases if hiring speeds up, but the latest jobs report is far from conclusive. The number of new jobs created over the past three months has averaged 155,000, but that’s well below the 237,000 rate from November through February.

“The jobs market is not strong enough for the Fed to stop its bond buying anytime soon,” said Kate Warne, an investment strategist at the brokerage Edward Jones.

Still, the increase in jobs in May suggests the U.S. will avert a midyear hiring slump for the third straight time. In both 2011 and 2012, job creation petered out by early summer before rebounding in the fall.

“The labor market continues to trudge forward at a solid though unspectacular pace, not unlike the economy as a whole,” said Jim Moran, chief investment officer at Plante Moran Financial Advisors.

One thing that’s clearly bolstering the economy is a sharp decline in layoffs. The percentage of the workforce losing jobs has fallen near an all-time low. Even though companies are not hiring as many people as expected at this stage of a recovery, they are increasingly reluctant to cut workers loose.

Some analysts cast a more positive light on the economy, saying growth might be even stronger if not for reduced government spending and a global slowdown.

“Fiscal drag and international weakness continue to hold back the growth outlook,” said Michael Griffin, an executive director at the business-advisory firm CEB.

Inside jobs report

The biggest gains in hiring last month occurred in the fields of professional services (57,000), bars and restaurants (38,000) and retail (28,000).

The increase in hiring in the professional ranks included 26,000 temporary workers. Temp hiring tends to rise when an economy strengthens and many jobs can end up being made permanent. Yet some economists and executives say companies are more reluctant to hire full-time workers because of new regulations and lingering uncertainty about the path of U.S. growth.

The construction industry added 7,000 jobs, but hiring appears to lag behind the increase in home building that’s fueling a recovery in the real estate market.

The manufacturing sector, whose growth has flagged over the past year, cut 8,000 jobs. Manufacturers have been hurt by cautious business investment in the U.S. and softer exports to key markets such as Europe that are mired in recession. Read about worst ISM manufacturing report in four years.

Government employment fell for the seventh time in the past eight months, including the loss of 14,000 federal positions.

The federal government has shed 45,000 jobs in the past three months, perhaps evidence that cuts in spending authorized by a law known as the sequester have put a dent in hiring. And economists believe more government job losses are on the way as the spending cuts fully kick in.

The average workweek, meanwhile, was unchanged at 34.5 hours, just one tick below a post-recession peak. The workweek usually rises when the economy gets stronger.

Hourly wages of American workers edged up 1 cent in May to $23.89, and they have risen 2% over the past 12 months.

Yet take-home pay would have to rise faster to elevate the economy to a higher plateau. Slow wage growth is one of the chief causes of the sluggish recovery since the U.S. relies primarily on consumer spending to power the economy.

The Labor Department on Friday also revised employment figures for prior two months, but they showed little change overall. The number of new jobs created in April was revised down to 149,000 from 165,000 and March’s increase was revised up to 142,000 from 138,000.