WASHINGTON (MarketWatch) — The U.S. added a modest 138,000 new jobs in May and hiring earlier in the spring was weaker than initially reported, adding to evidence that the tightest labor market in years is making it harder for companies to fill open jobs.
The unemployment rate, meanwhile, fell again to 4.3% from 4.4% and touched the lowest level since 2001, the Labor Department reported. Yet the decline stemmed more from people leaving the labor force than an increase in the number who found jobs.
The increase in hiring last month was well below Wall Street’s forecast, but the Dow Jones industrial Average
on Friday was on track to finish with a modest gain, perhaps a signal the Federal Reserve won’t be aggressive in raising interest rates. Economists surveyed by MarketWatch estimated a 185,000 increase in nonfarm jobs.
The steady rate of hiring, ultra-low unemployment rate and growing evidence of pressure on companies to raise wages is likely to keep the Federal Reserve on track to raise interest rates when senior bank officials meet in mid-June. The bigger question how far and how fast the Fed goes, especially since broader inflationary pressures have receded in the past few months.
Whatever the case, the economy is on very solid ground. The U.S. is about to enter its ninth full year of expansion — making it the third longest since the 1850s — and there’s few cracks in the foundation.
In May, white-collar firms, health-care providers, restaurants and energy producers led the way in hiring. The only notable weakness was among traditional retailers that continue to lose ground to internet rivals. They cut jobs for the fourth straight month.
Average hourly pay rose 0.2% in May to $26.22. Although a tight labor market hasn’t resulted in the kind of rapidly rising wages experienced in the past, workers are collected somewhat bigger paychecks. Over the past 12 months hourly pay has increased 2.5%, significantly faster compared to a few years ago.
Many economists predict wages will rise faster in the months ahead as companies take a more aggressive approach to filling open positions as competition for a dwindling supply of labor intensifies.
“Business complaints of labor shortages have become increasingly widespread,” noted economist Ted Wieseman of Morgan Stanley.
The dearth of skilled workers available for hire might even be a chief cause of the recent slowdown in hiring, some say.
In the first five months of 2017, the U.S. has added an average of 162,000 jobs a month. That’s down from 187,000 in 2016 and as many as 250,000 a month in 2014, a postrecession high.
The recent soft patch in hiring has been especially pronounced in the spring. The government cut its estimate of new jobs created in April to 174,000 from 211,000. And March’s gain was reduced to 50,000 from 79,000.
Still, the labor market overall is the healthiest it’s been in more than a decade, and the economy shows no signs of slowing down. The current expansion has lasted 96 months and is now the third longest since World War Two.
The tight labor market has also been increasingly reflected by a broader measure of unemployment that includes those who can only find part-time work as well as discouraged job seekers. The so-called U6 rate fell again, to 8.4% in May, and is closing in on the precession low of 7.9%.
Charles Mills, who works in marketing and sales at Outdoor Landscaping and Design in Pennsylvania, said the economy is probably the best he can recall since the early 2000s before a nationwide real estate bubble burst.
“I think we are just on a upswing,” he said. People are better off financially and less afraid they are going to lose their jobs and their homes, he said.
The rock-solid if run-of-the-mill recovery has persuaded the Fed to embark on a series of gradual increases in interest rates that raise the cost of borrowing for consumers and businesses, a strategy designed to prolong the current expansion by preventing the economy from overheating.