Job growth disappointed in May as the economy added just 38,000 jobs and the unemployment rate fell from 5 percent to 4.7 percent, the Bureau of Labor Statistics reported Friday.
May’s report fell well short of private-sector economists’ expectations for 158,000 new jobs. The 38,000 new jobs in the month was the worst mark since the jobs recovery began in October of 2010.
Revisions to the previous two months also subtracted 59,000 payroll jobs. With those updates included, job growth for the past three months has now averaged 116,000 a month, only just above the roughly 100,000 number that economists believe is needed to keep unemployment trending down.
One factor that subtracted from job growth was a strike by Verizon workers, since ended, that took place while the survey of businesses was being conducted. The strike cost 35,000 jobs, according to the Bureau, but those jobs will be added back in future months.
Underneath the headline numbers, the report’s details contained mixed signals, at best, about the health of the labor market as the jobs recovery stretches toward its sixth year.
The workforce shrunk by 458,000 in May, and the labor force participation rate dropped by 0.2 percentage points to 62.6 percent, indicating that the unemployment rate fell because the denominator shrunk, rather than because of job gains.
The drop in labor force participation also mostly reversed recent gains that had driven the participation rate from as low as 62.4 percent in September to 63 percent in March.
Labor force participation has dropped precipitously since the eve of the financial crisis to rates not seen since the late 1970s, a decline that reflects both demographic factors like the ongoing aging of the Baby Boom generation into retirement and the fact that many workers became so discouraged by their job prospects that they quit the job hunt entirely. Economists have arrived at different conclusions about how many quitters there may be, but before the past two months’ reports it had appeared that the jobs market was tight enough to draw more people into the job search.
Earnings growth also failed to show acceleration, at 2.5 percent annually.
The sector with the strongest growth in the month was health care, which added 46,000 new jobs, to bring yearly gains up to nearly half a million.
Meanwhile, the energy sector continued to show the enormous strains of the collapse in oil prices over the past two years. Mining jobs, a category that includes drillers and oil field services, contracted by 10,000. Since September of 2014, the number of mining jobs has declined by 207,000.
Investors and government officials were watching Friday’s report closely for signs that the jobs recovery remains intact.
Members of the Federal Reserve, in particular, have highlighted the payroll numbers as one of the key factors to watch ahead of their June monetary policy meeting. Fed Chairwoman Janet Yellen said last week that a rate hike in June or July would probably be appropriate “if the labor market continues to improve.”
Market odds of the Fed raising rates in June collapsed to near zero after Friday’s report. “This now assures that June is off the table but may not rule out July,” Mizuho Securities chief economist Steven Ricchiuto wrote in a note on the data.
