U.S. adds 175,000 jobs in May, showing stable but slow recovery

June 7, 2013

The economy added a solid 175,000 jobs last month, according to new government data released Friday morning, a reassuring sign that the recovery remains stable.

The Labor Department reported that the jobless rate ticked up slightly to 7.6 percent, about the level it has been for the past three months. But the details of the data were encouraging: More people were seeking work and fewer were giving up hope of finding a job.

The major U.S. stock indexes rose about 1.3 percent Friday, making up market losses after a volatile week of mixed data. The government’s jobs report served as a ballast for an economy buffeted by fiscal head winds at home and weak markets overseas.

“The reaction in the markets will be a huge sigh of relief, given how the expectations had been beaten down,” said Richard Moody, chief economist at Regions Financial Corp.

The bulk of the gains in May were in the service industry, which added 57,000 jobs. Still, about half of those were temporary positions, suggesting that businesses remain uncertain of consumer demand.

Missing from the picture were production jobs in industries such as construction and manufacturing. The rebound in the housing market had spurred a turnaround in the building industry, but the sector added only 7,000 jobs last month.

Meanwhile, manufacturing shed 8,000 workers, although the auto industry continued to add jobs. A new survey from the National Association of Manufacturers, an industry group, found that members were planning to increase hiring by an average of only 0.6 percent in the next year. About 16 percent of those surveyed said they probably would reduce their staff.

“There continues to be this skittishness to hire, not just in the current numbers, but moving forward, there really isn’t a huge surge coming, either,” said Chad Moutray, the group’s chief economist.

While the pace of the recovery has been steady, economists have criticized Washington, saying it stands in the way of more rapid gains. The federal workforce shrank by 14,000 people in May. State employment declined by 2,000, with gains in education offset by other cuts. But jobs in local government jumped by 13,000

Economists estimate that the combination of federal tax increases and government spending cuts — also known as the fiscal drag — are holding back growth by at least one percentage point. Many anticipate the country’s economic output to grow more slowly during the second quarter as a result.

The American Bankers Association’s economic advisory committee forecast Friday that the recovery will ramp up during the first half of next year to a 2.8 percent annual growth rate. The committee also predicted hiring will increase to 200,000 jobs a month next year.

The run-up in the stock market and rising home values are making many households feel wealthier, which in turn should support greater consumer spending, the economists said. The committee estimated residential investment will increase 15 percent this year.

“This strong growth demonstrates that housing has finally caught up with the broader economic recovery,” said Scott Anderson, the group’s chairman and chief economist at Bank of the West.

Some economists have raised concerns about the types of jobs being created. Sectors such as retail, restaurants and bars have been adding plenty of jobs, but those positions tend to pay low wages. Friday’s report showed workers’ average hourly earnings rose only a penny in May, to $23.89. For the entire year, wages have risen 2 percent.

“It is critical that we remain focused on pursuing policies to speed job creation and expand the middle class,” said Alan Krueger, head of President Obama’s Council of Economic Advisers.

The May jobs report also has implications for the Federal Reserve’s stimulus plan. The Fed is spending $85 billion a month to keep long-term interest rates low and stoke consumer and business demand. The central bank has said it will keep pumping money into the economy until there is substantial improvement in the labor market, but officials have been vague about what would trigger a pullback.

The Fed’s stimulus has also helped boost the stock markets, and investors have been worried that too much good news about the economy would bring an end to its easy-money stance. But analysts predicted that the pace of hiring in May was not robust enough to convince the Fed that the economy could stand on its own.

“Today’s report is perhaps the perfect number for nervous investors,” said James Marple, senior economist at TD Bank. “It is strong enough to point to continued economic recovery, but not so strong as to bring forward expectations of Fed tapering.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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