May Jobs Report Brightens U.S. Economy's Prospects

may jobs report
Justin Sullivan/Getty ImagesJob seekers at a San Francisco career fair earlier this week.
By Lucia Mutikani

WASHINGTON -- U.S. employment returned to its pre-recession peak in May with a solid pace of hiring that offered confirmation the economy has snapped back from a winter slump.

Nonfarm payrolls increased 217,000 last month, the Labor Department said Friday, in line with market expectations. Data for March and April was revised to show 6,000 fewer jobs created than previously reported.

"This was a very solid report with no obvious warts to detract from the underlying message of sustained improvement in economic activity," said Millan Mulraine, deputy chief economist at TD Securities in New York.

May marked a fourth straight month of job gains above 200,000, a stretch last witnessed in January 2000, even though it also marked a slowdown from the 282,000 jobs created in April, when hiring was still bouncing back from a winter lull.

The nation finally recouped the 8.7 million jobs lost during the recession, with 8.8 million more people working now than at the trough in February 2010. But the working age population has since increased 10.6 million and 12.8 million people have dropped out of the labor force.

U.S. stocks rose on the upbeat report, while prices for Treasury debt were little changed. The dollar rose marginally against a basket of currencies.

Economy Gaining Traction

The pace of hiring adds to data ranging from automobile sales to services and factory sector activity that have suggested economic growth this quarter will top a 3 percent annual pace.

The economy contracted at a 1 percent rate in the first three months of the year, dragged down by unusually harsh winter weather and a slow pace of inventory building by businesses.

The unemployment rate held steady at a 5½ year low of 6.3 percent as some Americans who had given up the search for work resumed the hunt.

A measure of underemployment that includes people who want a job but who have given up searching and those working part-time because they cannot find full-time jobs fell to 12.2 percent, the lowest since October 2008.

Economists expect more previously discouraged workers to re-enter the labor force over the course of the year. While that would be a sign of confidence in the labor market, it could slow the decline in the jobless rate.

%VIRTUAL-article-sponsoredlinks%The long-term unemployed accounted for 34.6 percent of the 9.8 million jobless Americans, down from 35.3 percent in April. The median duration of unemployment fell to 14.6 weeks, the shortest stretch in five years and a sharp drop from April.

"We are making progress, but we still have a very long way to go," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

The return of discouraged job seekers and drop in long-term unemployment will be welcomed by the Federal Reserve, which has cited low labor force participation as one of the reasons for maintaining an extraordinarily easy monetary policy.

The workforce, which had declined sharply in April, increased by 192,000 people last month. That left the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, at 62.8 percent.

Average hourly earnings, which are being closely watched for signs of wage pressures that could signal dwindling slack in the labor market, rose five cents, or 0.2 percent. On a year-over-year basis, earnings were up a tepid 2.1 percent, suggesting little build-up in wage inflation.

But earnings in some sectors, such as mining and information services, are rising at a much faster clip.

"It's a difficult time for [Fed] policymakers," said Peter Molloy, president at Edison Investment Research in New York. He said the central bank normally would be raising interest rates by now given the level of the jobless rate but wanted to go slow in the hope more Americans will re-enter the labor market.

The Fed has kept benchmark overnight rates pegged at near zero since late 2008 and is not expected to begin nudging them up until well into next year.

Employment gains in May were broad-based.

Manufacturing payrolls increased by 10,000, expanding for the 10th straight month. Further increases are expected as auto sales outpace inventories.

Construction payrolls rose by 6,000. It was the fifth consecutive month of gains, but the pace is slowing as the housing sector struggles to regain momentum.

There were sturdy job gains in leisure and hospitality, and professional and businesses services. Healthcare added 33,600 workers, likely boosted by the implementation of the Affordable Care Act. Government payrolls increased 1,000, a fourth straight monthly increase. Retail employment also rose.

The length of the workweek held steady at 34.5 hours, with a measure of total work effort rising by 0.2 percent.

-Additional reporting by Jason Lange.

9 Numbers That'll Tell You How the Economy's Really Doing
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May Jobs Report Brightens U.S. Economy's Prospects
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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