U.S. adds 175,000 jobs; jobless rate moves up

Paul Davidson | USA TODAY

Employers added a better-than-expected 175,000 jobs in May, providing further evidence of a resilient labor market despite huge federal spending cuts and global economic turmoil.

The unemployment rate rose to 7.6% from 7.5%, the Labor Department said Friday, as 420,000 Americans, including previously discouraged workers who had given up job-hunting, joined the labor force. The labor force includes people working and looking for work.

Businesses added 178,000 jobs, while federal, state and local governments cut 3,000. Professional and business services, leisure and hospitality and retail led job gains.

Economists had estimated that 165,000 jobs were added last month, according to a consensus forecast.

Payroll increases for March and April were revised down by a modest 12,000. March's increase was revised to 142,000 from 138,000, and April's, to 149,000 from 165,000.

RDQ Economics said the report "should ease concerns over the impact of" federal spending cuts on the economy.

But Patrick O'Keefe, a former deputy assistant labor secretary, says employers remain cautious. "They're hiring when they have orders and business sufficient to justify it but they're not anticipating" sales growth, says O'Keefe, now director of economic research for Cohn Reznick, an accounting and consulting firm.

He expects monthly job growth to average a moderate 180,000 the rest of the year, slightly below the average 200,000 pace from November through April. Average monthly gains have slowed to 155,000 from March through May, down from 233,000 the previous three months.

There were, however, some encouraging signs in the report. The number of temporary workers increased by 26,000. The addition of contingent workers typically heralds more hiring of permanent staffers.

And the underemployment rate — a broader measure of joblessness that includes people who stopped looking for work and part-time workers who prefer full-time jobs, as well as the unemployed — dipped to 13.8% from 13.9%.

The average workweek was unchanged at 34.5 hours. Employers typically increase the hours of existing workers before adding new ones. And average hourly earnings rose 1 cent to $23.89.

Professional and business services led job gains with 57,000. Leisure and hospitality added 43,000 and retailers, 28,000. The construction industry added 7,000 jobs while manufacturers cut 8,000.

Michael Gapen of Barclays Capital, a former monetary policy official at the Federal Reserve, said the report was not strong enough to prompt the Fed to move to scale back its bond-buying at its June 18-19 meeting. He expects the Fed's $85 billion in monthly bond purchases, aimed at holding down interest rates, to continue through year-end.

But Jim O'Sullivan, chief U.S. economist of High Frequency Economics, says the Fed could begin to rein in the purchases at its September meeting if the recent pace of job growth continues.

Some economists lowered their estimates for May job growth after payroll processor ADP this week reported businesses added just 135,000 jobs during the month and another survey showed service-sector employment stagnating.

Those reports stirred fears that $85 billion in across-the-board federal budget cuts, a January increase in payroll taxes and a eurozone recession were finally nudging a surprisingly solid job market into a fourth straight mid-year slump.

The new health care law's mandate for businesses with at least 50 workers to provide health insurance to many employees starting in January also is expected to dampen hiring.

But other economists have been encouraged by a fairly steady decline in layoffs. The number of initial jobless claims fell by 11,000 to 346,000 in the week ending June 1 and has been trending downward for months — a trend that typically signals healthy job growth.

A recovering housing market, improved household finances and a Federal Reserve initiative to hold down interest rates largely have offset austerity in Washington.