U.S. businesses hired hundreds of thousands of additional workers last month, the Labor Department reported yesterday, a pace of job growth that if sustained would erase all the job losses of the recession by the end of the year.
The brightening labor market drew an additional hundreds of thousands of job seekers to look for work last month. Because the number of new hires roughly matched the additional number looking, the unemployment rate remained at 5.6 percent in May -- unchanged from April, but down from the recent peak of 6.3 percent last June.
Employers added 248,000 jobs in May across a variety of industries, and the department raised its previous estimates of job growth for March and April by a combined 74,000. That meant an average gain of more than 315,000 jobs in each of the past three months -- a booming pace after six weaker months.
That left the economy with 1.3 million fewer jobs in May than it had when the recession began in March 2001 -- a gap that could be made up if employers added an average of 200,000 jobs a month for the rest of the year. Some analysts said that is a good possibility given the strength of the economy, while others warned that the pace might taper off if high oil prices and terror fears cause businesses to pull back.
Continued strong job growth would deliver President Bush from the danger of being labeled the first president since Herbert Hoover to end his term with fewer jobs on the nation's payrolls than when he started -- a threat his Democratic critics have repeated until recently.
"I think this is something that can be sustained," William G. Cheney, chief economist at MFC Global Investment Management, said of the pace of job creation.
The figures showed that the once-halting recovery has given way to a self-sustaining expansion, analysts said, as job growth drives up incomes, which fuels more spending, which begets more hiring, he said. "You create that many jobs and people go out and spend the money and it feeds on itself," Cheney said.
The White House hailed the job figures as evidence that the president's tax cuts succeeded in stimulating both consumer spending and business investment.
"Today's jobs report shows that the American economy is strong and it's getting stronger," President Bush said during a visit to Rome. "It shows that the economy is vital and growing."
Democrats responded by noting that 8.2 million Americans remained unemployed last month, and more than one-fifth of them have been jobless more than six months.
"Any step forward in the job market is good news for workers, but America is still in the worst job recovery since the Great Depression," Allison Dobson, a spokeswoman for Democratic presidential candidate Sen. John F. Kerry (Mass.), said in a prepared statement.
The economy grew at a 4.4 percent annual rate in the first three months of the year, but much of that growth was attributed to government efforts to prod it along with very low interest rates and tax cuts. The expansion appears to be continuing at close to that pace in the current quarter, but now more of the fuel is coming from employment gains and business investment.
The payroll figures also show that employers can no longer keep up simply by using new technology and management methods to squeeze more efficiency out of their workers, as they had done for many months after the recession, during what was termed the "jobless recovery."
"Businesses simply had to add those workers to meet demand," said Richard Yamarone, director of economic research at Argus Research Corp. Manufacturers, which boosted their combined payrolls by 32,000 jobs in May for a fourth consecutive month of gains, are "adding workers like it's a party out there."
Business executives said they feel the shift in the economic tempo and are cautiously increasing their hiring plans. The Business Roundtable said last week that 38 percent of the chief executives it recently surveyed said they plan to add to their company payrolls in the next six months, up from 33 percent in March.
"Things have been changing underneath our feet in past 30 days," said Sean Bisceglia, chief executive of Chicago-based CPRi Inc., a staffing firm for marketing professionals. He said the firm experienced a 30 percent increase last month in "temp-to-perm" placements, in which client companies hire a temporary employee from CPRi, with the intention of employing the worker permanently if things go well.
"Yes, the economy is recovering, but people are still tentative about adding full-time staff," Bisceglia said.
Stock prices rose yesterday, reflecting expectations of continued strong economic growth. But bond prices fell, and yields rose, as the report reinforced investor expectations that Federal Reserve policymakers will raise interest rates later this month to prevent inflation from taking off.
Analysts and investors predict the Fed will raise its benchmark overnight rate to 1.25 percent from 1 percent, where it has been since last June. Rates set by financial markets, such as mortgage rates, have already started rising in anticipation, eroding the value of bonds previously issued at lower rates.
One sign of persistent weakness in the eyes of some Fed officials is the relatively low share of working-age civilians who either have a job or are actively looking for one. This labor-force participation rate was 65.9 percent in May, which was unchanged since February, and below the 66.2 percent rate of May last year.
This may indicate that the unemployment rate "may understate the availability of labor resources," Fed Governor Donald L. Kohn said in a speech yesterday. He and other Fed officials have often cited slack in the labor market as among the forces restraining inflation.
Paychecks grew last month, as workers' average private hourly earnings rose 5 cents, to $15.64 in May, seasonally adjusted. Average private weekly earnings rose $1.69, to $528.63.
While the overall jobless rate was unchanged, the rate for blacks and African Americans rose to 9.9 percent in May from 9.7 percent in April. Joblessness among Hispanics and Latinos slipped to 7 percent last month from 7.2 percent the previous month.
Staff writer Amy Joyce contributed to this report.