Weak jobs growth may stall Fed rate hike
Only 38,000 positions were created in May, the least in five years. The slowdown stirs an election-year issue.
The U.S. economy added just 38,000 net new jobs last month, making it unlikely Federal Reserve policymakers will increase a key interest rate later this month.
The nation’s job engine sputtered to a near halt last month, probably derailing an interest-rate hike and igniting new concerns about the health of the U.S. economy that could further roil the tumultuous presidential campaign.
The report issued by the Labor Department on Friday wasn’t all bad news. The unemployment rate fell to 4.7%, the lowest since 2007, although the main reason was nearly half a million Americans dropped out of the workforce.
And wage growth, which has lagged behind in recent years, posted another month of solid improvement.
But the anemic job growth of just 38,000 in May was the worst monthly performance in more than five years, which feeds into the Republican narrative that President Obama’s economic policies have been a failure.
The nation needs a change, not more of the same Democratic policies from Hillary Clinton, the front-runner for the party’s presidential nomination, said Reince Priebus, chairman of the Republican National Committee.
“By running on four more years of Obamanomics, Hillary Clinton is guaranteeing that struggling Americans will never get ahead,” he said. “Donald Trump is a successful businessman who knows what it takes to create jobs and get our economy back on track.”
Trump, the presumptive Republican nominee, quickly seized on the news.
“Terrible jobs report just
reported. Only 38,000 jobs added. Bombshell!” he tweeted minutes after the Labor Department released the data.
The top-line job creation figure was about 120,000 less than analysts had expected. That figure was artificially low because about 35,000 Verizon workers on strike last month weren’t counted as employed.
Average hourly earnings increased 5 cents in May to $25.59, less than the 9-cent increase the previous month. For the 12 months ending May 31, average hourly earnings increased 2.5%. That’s well above the rate of inflation.
But job growth has slowed markedly. With downward revisions Friday to March and April figures, the nation averaged 116,000 net new jobs added over the past three months.
That’s nearly half the 222,000 average for the 12 months that ended Feb. 29, and it adds to concerns that the economy is weakening seven years into the current expansion.
With a Democrat in the White House, Clinton stands to pay the price, analysts said.
“If the economy gets worse, her fortunes get worse, no doubt about it,” said Patrick Egan, an associate professor of politics and public policy at New York University.
Clinton had been seen as benefiting from Obama’s recent improvement in public approval ratings. A deteriorating economy likely would cut into those ratings, and in turn Clinton’s standing with the public would most likely worsen.
It won’t be easy for Clinton to separate herself from Obama’s economic policies, although she has opposed the White House-led Pacific free-trade agreement.
“She can’t really afford to distance herself too far from here because she needs people who identify with Obama, especially African American voters, to turn out in November,” Egan said.
In a poll released this week, Gallup said 53% of voters preferred Trump on the economy while 43% favored Clinton. And by a 52% to 41% margin, voters in a Quinnipiac University poll this week said Trump would be better than Clinton at creating jobs.
On Wednesday, Obama touted the economy in a speech in Elkhart, Ind.
“America’s economy is not just better than it was eight years ago — it is the strongest, most durable economy in the world,” he said. “Over the past six years, our businesses have created more than 14 million new jobs.”
Jason Furman, chairman of the White House Council of Economic Advisors, conceded Friday that the pace of job growth in May was “considerably slower” than in recent months.
But he and Clinton stressed that U.S. businesses now have added jobs for a record 75 straight months.
“Yes, the numbers that had come out this week are disappointing to anybody because we want to keep jobs growing,” Clinton told CNN.
She said she’s advocated for Congress to fund infrastructure projects to create more jobs and said Trump represents “failed Republican policies” that “throw us into a recession again.”
Economists cautioned not to overreact to a single bad jobs report. “It’s kind of a yellow f lag. I wouldn’t call it a red flag,” said Stuart Hoffman, chief economist at PNC Financial Services.
“It’s not time to panic,” he said. “These numbers are quite disappointing but not decisively recessionary or a sign that the economy is down and out.”
Some key economic sectors slashed payrolls last month. The telecommunications industry shed 37,200 jobs, temporary help services 21,000, construction 15,000, mining 11,000 and manufacturing 10,000.
“Employers have been more guarded in adding additional workers because as we see in the other major economic indicators, the overall pace of growth has slowed,” said Patrick O’Keefe, economic research director at accounting and consulting firm CohnReznick. “Employers don’t want to get ahead of their order books.”
Several unusual circumstances might have worsened the headline number. The Verizon strike, which was settled last week, was the main reason that telecommunications payrolls dropped.
Mild winter weather in much of the country could have led to earlier-than-usual hiring by construction companies, which would have pushed down May hiring. In February and March, the industry added 50,000 net new jobs, compared with just 20,000 for the same months the year before.
Conversely, construction companies shed a total of 20,000 total jobs in April and May of this year. They added 55,000 in those months last year.
Federal Reserve policymakers had indicated in recent days that they could nudge up their benchmark short-term interest rate this month. But Fed Chairwoman Janet L. Yellen and other officials conditioned that on the economy continuing to improve as they expected. It’s likely that none of them expected May’s startlingly poor job creation.