The nation's unemployment rate fell back to 4.2 percent in May, its lowest level in 29 years, but job growth almost came to a standstill, the government reported yesterday.
The decline in the jobless rate from 4.3 percent in April suggested the economy is continuing to race along. But other parts of the Labor Department report appeared to support those who believe the economy is slowing. Most startling was the finding that the economy had generated only 11,000 jobs instead of 200,000 or more that economists were expecting.
With the Federal Reserve Board mulling an interest rate increase as soon as the end of this month, economists and financial markets had been looking nervously to the unemployment figures for a clue as to whether the economy is so hot that it could touch off a bout of inflation and provoke the Fed to tighten interest rates to head it off.
But the numbers appeared to settle nothing. The slight decline in the unemployment rate while few jobs were created could be explained by a small number of people leaving the work force.
"It's clearly a mixed bag," said Steve Slifer, chief U.S. economist for Lehman Brothers. "I'm not sure the employment data themselves were terribly enlightening."
Katharine G. Abraham, commissioner of the Bureau of Labor Statistics, called the figures a "wait-and-see report," and said she would need another two months of data before discerning any trend.
The financial markets were similarly ambivalent. Initially, bond prices fell sharply but later rallied and finished the day slightly lower, with the yield on the benchmark 30-year Treasury reaching 5.96 percent. The stock market shrugged off the news, trading with no seeming direction throughout the day before the Dow Jones industrial average surged in late trading to finish up 136.15 points, at 10,799.84, for a gain of 1.3 percent.
The 4.2 percent unemployment rate matched the March jobless rate, which was the lowest since February 1970.
For some economists, the strong unemployment rate was further evidence that the job market is extremely tight, the sign of a super-hot economy that could push wages up and raise inflation, which has recently been running at a moderate rate of about 2.25 percent.
"There really aren't any more bodies to hire," said Sun Won Sohn, chief economic officer for Wells Fargo. "Some of our customers are telling us that labor is virtually impossible to get . . . this is another nail in the coffin for tightening interest rates."
But others noted that if the job market really was that tight, wages would be accelerating as employers bid up salaries to attract increasingly scarce workers.
In fact, the Bureau of Labor Statistics said that the average hourly wage rose 0.4 percent in May, more than forecast. But Ray Stone, an economist with Stone & McCarthy Research Associates, called that number "very benign," insisting it would be "wrong to conclude that wage pressures have intensified in May."
Slifer of Lehman Brothers noted that on an annual basis, May wages rose at a modest 3.6 percent rate, substantially lower than the 4.4 percent rate when wage acceleration peaked in April of last year.
Taken together, Slifer said, the Bureau of Labor Statistics data "suggest that the economy is slowing a bit." As for the Fed, he said, "I'm not looking for them to raise rates at the end of the month."
"It certainly does give the Fed some breathing room," agreed Ken Goldstein, an economist with the Conference Board in New York. But while "it lessens the chance that the Fed's going to move in June," he said, "I doubt seriously if it disrupts their long-term strategy" to raise rates. Goldstein said he expects an increase by Labor Day.
The Federal Reserve Board's policymaking committee will meet for two days beginning June 29 to assess rates; it already has signaled that it is sufficiently worried about inflation to adopt a bias toward ratcheting up rates.
Economists and market strategists have been watching for any indicator that would push the Fed one way or the other, and with yesterday's report inconclusive, their focus will shift to the release of the May produce price index on June 11 and the consumer price index on June 16. It was an unexpected 0.7 percent jump in the CPI for April that sparked concerns in the financial markets that the Fed would have to raise rates to head off inflation.
Economists who sought to explain the sharp drop-off in new jobs in May noted that the April number had been revised upward almost as sharply, from 234,000 to 343,000 new jobs.
"Given everything else we know that's going on in the economy, [the May figure] may be revised upward" as well, said Peter Kretzmer, senior economist with Bank of America Corp.
Some of the May drop-off could also reflect one-time anomalies in hiring patterns and government scorekeeping. For example, while construction jobs rose a strong 200,000 during the month, that was recorded as a 40,000-job drop below the seasonally-adjusted expectation for May, when construction hiring usually picks up. Several economists noted that mild weather prevented many of the usual winter layoffs, which meant that many of the workers who would usually be rehired in May were already working.
Other sectors shed jobs in May: manufacturing continued a downward slide, losing 45,000 jobs; mining lost 7,000 jobs, largely attributed to the slowdown in oil and gas drilling. The usually booming service sector turned sluggish in May, adding 71,000 new jobs instead of the 125,000 jobs it has averaged over the last 12 months.
Other pieces of the data pointed to a steadily tightening job market. Black unemployment dropped to 7.5 percent, the lowest rate since separate statistics were first collected in 1973, according to the Labor Department. Teenage unemployment fell to 12.6 percent, and the unemployment rate for adult women fell to 3.6 percent, both the lowest in 30 years.
"What it suggests to me is that this is an economy that is finally lifting all boats," Labor Secretary Alexis Herman said. "We are finally tapping all labor pools."
CAPTION: Jobless Rate Slides (This chart was not available)