Ro­bust jobs re­port raises con­fi­dence

Strong data in­di­cate eco­nomic mo­men­tum has re­turned af­ter a bleak win­ter quar­ter.

Los Angeles Times - - BUSINESS - By Don Lee

WASH­ING­TON — The U.S. job mar­ket grew far more than ex­pected last month, shor­ing up con­fi­dence that eco­nomic mo­men­tum had re­turned af­ter the bleak win­ter quar­ter and in­creas­ing the odds that the Fed­eral Re­serve will hike in­ter­est rates by the end of Septem­ber.

The ad­di­tion of 280,000 net new jobs in May, re­ported Fri­day by the La­bor Depart­ment, was the most this year and came af­ter a gain of 221,000 pay­rolls in April and about half that in March. Eco­nomic ac­tiv­ity and hir­ing had tailed off early this year largely be­cause of the harsh win­ter weather and the la­bor dis­rup­tions at West Coast ports.

Fri­day’s strong em­ploy­ment data raised hopes that em­ploy­ers will con­tinue to hire at a healthy pace this year, even as more busi­nesses are re­port­ing la­bor short­ages. Econ­o­mists said small em­ploy­ers in par­tic­u­lar have been step­ping up their hir­ing as sales and prof­its have im­proved.

“The out­look is not ex­cit­ing but solid,” said Wil­liam Dunkel­berg, chief econ­o­mist at the Na­tional Fed­er­a­tion of In­de­pen­dent Busi­ness. “Small busi­nesses are car­ry­ing more of their weight.”

Growth in hourly wages con­tin­ued to rise at a steady pace in May. The na­tion’s un­em­ploy­ment rate edged up a tic to 5.5% in May from 5.4%, but that was largely be­cause more peo­ple en­tered the la­bor mar­ket.

Dunkel­berg noted that the prob­lem at the ports and the strong dollar were not as dis­rup­tive to small firms, which are less de­pen­dent on for­eign sales. Be­tween the Greek debt cri­sis, the slow­down in China and other trou­ble spots around the world, eco­nomic risks from abroad re­main.

Still, the lat­est jobs re­port will re­as­sure the Fed that U.S. eco­nomic growth re­mains firmly on track. And many an­a­lysts now think that the cen­tral bank will make its first rate hike in

nearly a decade at its meet­ing in Septem­ber in­stead of De­cem­ber.

Fed pol­i­cy­mak­ers meet next week and again in July, but are not ex­pected to take ac­tion as they wait for more in­for­ma­tion on em­ploy­ment and in­fla­tion, among other data.

On Thurs­day, the In­ter­na­tional Mon­e­tary Fund urged the Fed to hold off on rais­ing rates un­til next year as the IMF marked down its out­look for U.S. eco­nomic growth this year to 2.5% from a pro­jec­tion of 3% ear­lier this year.

U.S. stocks traded lower Fri­day, but the dollar strength­ened and the 10year Trea­sury yield, a bench­mark for mort­gages, jumped on the jobs re­port.

Econ­o­mists were par­tic­u­larly en­cour­aged by the slightly faster in­crease in work­ers’ pay, which has been slow to come de­spite a job mar­ket that is in­creas­ingly tight­en­ing.

The La­bor Depart­ment said av­er­age hourly earn­ings of all pri­vate-sec­tor em­ploy­ees rose 8 cents to $24.96 in May, up 2.3% from a year ago and about a per­cent­age point higher than core in­fla­tion. Though still mod­est, the pace of wage growth has risen steadily from an an­nual gain of 2% in Fe­bru­ary.

An­a­lysts ex­pect fur­ther ad­vances in the months ahead, boosted in part by min­i­mum-wage in­creases ap­proved in a num­ber of cities and states, as well as poli­cies adopted by some large em­ploy­ers, such as Wal­Mart and McDon­ald’s, that re­cently lifted the pay f loor for em­ploy­ees.

“Wage growth is start­ing to ac­cu­mu­late as the em­ploy­ment gap has nar­rowed,” said Alan Leven­son, chief econ­o­mist at T. Rowe Price As­so­ciates in Bal­ti­more. “It wouldn’t be sur­pris­ing if to­day marked the be­gin­ning of the rise in wage inf la­tion.”

A grow­ing num­ber of busi­nesses have re­ported more dif­fi­culty find­ing skilled work­ers, par­tic­u­larly in the con­struc­tion and high-tech in­dus­tries. That is start­ing to push up wages and salaries and give work­ers more op­por­tu­ni­ties to change jobs.

“We are see­ing by far the high­est place­ment of our grad­u­ates,” said Richard Wobbekind, as­so­ciate dean at the Leeds School of Busi­ness at the Uni­ver­sity of Colorado, Boul­der.

Colorado’s un­em­ploy­ment rate was 4.2% in April, well be­low the U.S. rate then of 5.4%, and even with the re­cent drop-off in the en­ergy sec­tor, Wobbekind said, the state’s job growth and con­sumer spend­ing were surg­ing ahead.

Colorado and other West­ern states are ben­e­fit­ing from stronger hous­ing mar­kets and an ex­pan­sion in en­gi­neer­ing and high-tech in­dus­tries than some other ar­eas of the coun­try.

“We’re start­ing to see the mo­men­tum and con­fi­dence build­ing when you look at the West­ern part of the econ­omy,” Wobbekind said.

With stronger hir­ing and con­fi­dence, more work­ers side­lined dur­ing the re­ces­sion and slow re­cov­ery are likely to be drawn back into the job mar­ket. That will tend to push up the un­em­ploy­ment fig­ure, which is based on the to­tal num­ber of peo­ple with jobs and those look­ing for work.

The wage gains, along with a plunge in gaso­line prices in the last year, should help juice the econ­omy in the months ahead. Con­sumer spend­ing ac­counts for about two-thirds of U.S. eco­nomic ac­tiv­ity.

Although the econ­omy con­tracted at an an­nu­al­ized rate of 0.7% in the first three months of the year, the U.S. should see eco­nomic growth re­bound to a healthy 3% in the sec­ond and third quar­ters, said Stu­art Hoffman, chief econ­o­mist for PNC Fi­nan­cial Ser­vices Group.

Hoffman said the breadth of May’s job gains, well above the 220,000 ex­pected, was im­pres­sive.

Apart from the min­ing and the in­for­ma­tion sec­tors, all ma­jor sec­tors added to their pay­rolls. The strong hir­ing spanned low-pay­ing re­tail and restau­rant out­lets to high-pay­ing com­puter sys­tems de­sign and other tech­ni­cal ser­vices. There were also hefty gains in health­care.

“It’s cer­tainly a strong month in terms of job cre­ation,” said Thea Lee, an econ­o­mist at the AFL-CIO in Wash­ing­ton. But she noted that the uptick in the May job­less rate showed that there’s still plenty of slack in the la­bor mar­ket, or peo­ple wait­ing in the wings for jobs or more hours of work.

“Up un­til now, you haven’t had the kind of dy­namism to re­store the econ­omy to full em­ploy­ment and the in­comes that were lost,” Lee said. “We’d like to see some pretty ro­bust job growth over a pro­tracted pe­riod of time. That’s when you will see full em­ploy­ment, and work­ers have more chances and the abil­ity to change jobs with­out fear.”

Fri­day’s re­port showed that while un­em­ploy­ment has fallen, peo­ple un­em­ployed for longer than six months still con­sti­tuted about 29% of the to­tal job­less. Also high by his­tor­i­cal stan­dards was the num­ber of work­ers who are in part­time jobs but want full-time hours, ris­ing in May to 6.65 mil­lion.

A broader mea­sure of un­em­ploy­ment and un­der­em­ploy­ment, which in­cludes in­vol­un­tary part-time em­ploy­ees and work­ers too dis­cour­aged to look for jobs, was un­changed in May at 10.8%.

Spencer Platt Getty Images

THE MAY JOBS RE­PORT raised hopes that em­ploy­ers will con­tinue to hire at a healthy pace this year, even as more busi­nesses are re­port­ing la­bor short­ages. Above, peo­ple walk in lower Man­hat­tan in New York City.

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