WASHINGTON: US job growth accelerated sharply in May and wages picked up, signs of strong momentum in the economy that bolster prospects for a Federal Reserve interest rate hike in September.
Non-farm payrolls increased 280,000 last month, the largest gain since December, the Labour Department said.
While the unemployment rate rose to 5.5% from a near seven-year low of 5.4% in April, that was because more people, including new college graduates, entered the labour force, indicating confidence in the jobs market.
“Today’s strong jobs report shows that the underlying trend in the economy is continuing to improve. This leaves the Fed on course to start hiking rates in September,” said Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York.
The report joined May automobile sales and manufacturing data in suggesting economic activity was gaining traction after a slow start in the second quarter.
Doubts had sprung up in financial markets over whether the Fed would be able to raise rates this year after a first-quarter contraction in GDP and a string of weak data in April, including soft figures on consumer spending and industrial production.
The jobs data helped dispel those doubts. The dollar raced to a 13-year peak versus the yen and surged against the euro.
Prices for US government debt fell sharply, with the yield on the two-year note rising to a more than four-year high.
Stocks on Wall Street ended mostly lower.
Average hourly earnings, which had long been the missing piece in the jobs recovery and one closely watched by Fed policymakers, rose eights cents. In addition, payrolls for March and April were revised to show 32,000 more jobs created than previously reported, giving the report a healthy glow.
Traders in futures markets brought up their expectations for a rate hike to October from December. Fed officials, who have kept overnight borrowing costs near zero since December 2008, meet on June 16-17 to plot their course.
“First-quarter GDP is looking even more anomalous, and some of the recent growth concerns should be mollified by the latest job growth figures,” said Michael Feroli, an economist JPMorgan in New York.
Economists had forecast payrolls rising 225,000 last month, with the unemployment rate steady. May’s payroll gains lifted job growth above last year’s average of 260,000 jobs per month.
Despite May’s rise in the jobless rate, it remains not too far from the 5%-5.2% range that most Fed officials consider consistent with full employment.
Policymakers will also be encouraged by the return of some discouraged job seekers to the labour market.
The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased 0.1 percentage point to 62.9%, a four-month high. The number of discouraged workers in May was the lowest since October 2008, and the percentage of the working-age population employed hit its highest level since June 2009.
“These formerly frustrated workers are returning to the labour force as a pick-up in hiring activity and record-high job openings have been increasing their chances of finding a job,” said Harm Bandholz, chief US economist at UniCredit Research in New York.
In May, 28.6% of the unemployed had been out of work for 27 weeks or more, the lowest rate in six years. A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment was unchanged at 10.8%.
Last month’s increase in average hourly earnings took the year-on-year gain to 2.3%, the largest rise since August 2013. The mix of jobs gains and higher wages lifted the aggregate weekly payrolls index, a proxy for take-home wages, 0.5% in May and 4.9% over the year.
Further gains are expected given firming demand for entry-level workers and a better composition of jobs that are being created. In addition, many states have raised the minimum wage and some corporations are increasing pay for workers.
Walmart, the largest private employer in the United States, this week announced it would raise minimum wages for more than 100,000 US workers, its second wage hike this year.
Payroll gains last month were broad-based, though the mining sector purged jobs again as it continued to work through the thousands of cuts announced by oil-field companies. The 18,000 mining jobs lost in May marked a fifth straight monthly decline.
Among sector heavyweights, Schlumberger has announced about 20,000 layoffs this year, while Baker Hughes and Halliburton are also cutting thousands of jobs. – Reuters
Manufacturing employment increased 7,000, while construction employment payrolls rose by 17,000. – Reuters
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