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Employers in U.S. Add Fewest Workers in Almost Six Years

June 3, 2016
Employers in May added the fewest number of workers in almost six years, reflecting broad cutbacks that may raise concern about U.S. growth and prompt Federal Reserve policy makers to put off an increase in interest rates.

Employers in May added the fewest number of workers in almost six years, reflecting broad cutbacks that may raise concern about U.S. growth and prompt Federal Reserve policy makers to put off an increase in interest rates.

The addition of 38,000 workers, the fewest since September 2010, followed a 123,000 advance in April that was smaller than previously estimated, a Labor Department report showed Friday. The increase in May was less than the most pessimistic forecast in a Bloomberg survey. The jobless rate dropped to 4.7 percent, the lowest since November 2007, as Americans left the labor force.

Smaller employment gains reduce the odds of a more pronounced upturn in household spending and economic growth after a poor start to the year. Fed officials will take into account more judicious hiring, at a time when corporate profits are on a downswing and global markets remain weak, as they consider whether to raise interest rates again.

“The slowdown in job growth looks pretty pervasive across industries,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “It raises some questions about the momentum of growth and about the outlook. The easy thing to say is, this takes June off the table for a Fed hike. To get to July, we’re going to need a pretty nice rebound in the data.”

The median forecast in a Bloomberg survey of economists called for a 160,000 gain in May employment. Estimates of 90 economists ranged from job gains of 90,000 to 215,000 after an initially reported 160,000 increase in April. Revisions to prior reports subtracted a total of 59,000 jobs from payrolls in the previous two months.

The report showed a broad hiring slowdown, including declines in payrolls in construction, manufacturing and mining. Job growth at private service producers slowed, with employment climbing by just 61,000. That brought the diffusion index, which measures the breadth of hiring, to 51.3 in May, the lowest since February 2010.

Furthermore, Americans who are working part-time though would rather have a full-time position, or the measure known as part-time for economic reasons, climbed to 6.4 million in May, the highest since August, from 6 million a month earlier.

The unemployment rate, which is derived from a separate Labor Department survey of households, was projected to drop to 4.9 percent, matching the lowest level since 2008, from 5 percent, according to the survey median.

Hourly Pay

A bright spot in the report was worker pay. Average hourly earnings rose by 0.2 percent in May after a 0.4 percent gain in April that was a bit stronger than initially reported. Worker pay increased 2.5 percent over the 12 months ended in May.

The report showed weakness in sectors vulnerable to slow overseas markets and the cutbacks in energy investment, along with hiring slowdowns in services.

Factories cut employment for the third time in the last four months, while construction companies shed 15,000 jobs. Employment fell again in mining and logging, extending a decline that stretches back to October 2014. Payrolls shrank by 21,000 at temporary-help service providers and are down by about 64,000 so far this year.

The payrolls figure also reflected a work stoppage at Verizon Communications Inc. that Labor Department data showed involved some 35,100 workers, the most in four years. Those workers were idle for the entire payroll survey pay period, which includes the 12th of the month.

Landline workers at Verizon began protesting in April as the company sought to increase workers’ contributions for health benefits and greater flexibility in temporary job relocations.

Friday’s report showed employment in the information sector dropped by 34,000.

Fed policy makers, who are considering when to next raise interest rates after lifting them in December for the first time in almost a decade, have said they expect continued improvement in the job market.