Traders keep bets on June rate hike after jobs report

Andrew Cummings
June 4, 2017

The unemployment rate ticked down a tenth of a percentage point to 4.3 percent, the lowest since 2001, but that was largely because 429,000 people dropped out of the labor force.

That puts average monthly job growth over the past quarter (March through May) at only 121,000 jobs, down by more than 50,000 jobs monthly from the same growth rate of 186,000 jobs/month over the one-year period from May 2016 through April 2017. "The average over the past three months now stands at just 120,000, well below last year's average pace of about 180,000".

Health care added 24,000 in May, including hospitals adding 7,000 jobs and ambulatory health care services adding 13,000.

According to the ADP report released June 1, the USA gained 253,000 private sector jobs in May.

While the drop in the jobless rate in May looks like good news, it also reflects the fact that some workers left the labor force, with the closely-watched labor force participation rate falling 0.2 points to 62.7 percent. Over the past 12 months, job additions have averaged 188,000 per month.

In order to keep up the growth in the working-age population, the economy needs to create 75,000 to 100,000 jobs per month.

A hiring pullback reported in Friday's data for May raises that prospect.

While the Fed has forecast two more rate hikes this year, various reports indicate the market doubts the central bank's ability to initiate a rate increase beyond June this year. Last month's decline came as people left the labour force.

In May average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.22.

There are, however, fears that political scandals could derail the Trump administration's economic agenda. Employers have added more than 2 million jobs in the past year, and a month or two of slow growth isn't unusual. Employers have added jobs every month since October 2010.

Last month, hiring was improved in the construction sector and was relatively strong in health care. The Fed aims to maintain moderate inflation, rather than price stability, because that lets the Fed cut interest rates more sharply during an economic downturn.

Other economists suggest that broad pay gains tend to occur after a lag and that the low unemployment rate should lead to higher wages within the next 18 months.

But economists say this goal is unrealistic and the latest data may bolster that view, especially with increasing reports that firms are struggling to fill open positions. Manufacturers let go of 1,000 workers.

A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they can not find full-time employment, fell two-tenths of a per centage point to 8.4 per cent, the lowest since November 2007.

Many economists see the labor market as reaching full employment, or the point when virtually all job seekers have found work, but wage inflation is still modest.

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