The Labor Department reported that there were 223,000 jobs created in the U.S. economy in May, well above the consensus expectation of 190,000. This followed a downwardly revised gain of 159,000 jobs in April (originally reported as 164,000) and an upwardly revised gain of 155,000 in March (originally reported as 135,000). The two-month revision was a positive 15,000 new jobs. After revisions and thus far five months into the year, payrolls gains have averaged 207,000 per month, up from 182,000 per month last year.
The unemployment rate fell to 3.8% in May from 3.9% in April, its lowest level since April 2000. This is well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5% and continues to suggest that there will be growing upward pressure on wage rates. The jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).
A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.6% in May from 7.8% in April and was down from 9.2% as recently as December 2016. May’s rate was the lowest level in 17 years.
In May, the number of unemployed persons declined by 772,000. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.2 million and accounted for 19.4% of the unemployed. Over the past 12 months, the number of long-term unemployed has declined by 476,000.
Average hourly earnings for all employees on private nonfarm payrolls rose in May by eight cents to $26.92. Over the past 12 months, average hourly earnings have increased by 71 cents, or 2.7%. This is up from 2.6% in April and 2.5% on average in 2017.
The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work fell by 0.1 percentage point to 62.7% but was up from 62.4% in 2015. Nevertheless, this remains quite low by historic standards, at least partially reflecting the effects of retiring baby boomers.
Health care added 29,000 jobs in May, in line with monthly gains in the past year.
The May jobs report will provide further support for increases in interest rates through 2018 by the Federal Reserve. Already, the Fed increased the fed funds rate 25 basis points at its March 20/21st FOMC meeting. The Fed has raised rates by a quarter percentage point six times since late 2015, and most recently to a range between 1.50% and 1.75%, after keeping them near zero for seven years. Hence, it is likely that there will be another 25-basis point increase announced by the Fed at its June 12th – 13th FOMC meeting.
