Jobs

U.S. job growth was well below expectations in May but the unemployment rate fell to its lowest level in 16 years and economists are still predicting an interest rate hike this month.

The Labor Department reported that employers added 138,000 net new jobs last month, compared to economists’ estimates of a gain of about 185,000.

April payroll growth was revised to 174,000 from an initially reported 211,000, while the government also revised March’s job growth downward by 29,000 jobs. Over the past three months, the economy now has averaged a gain of just 121,000, compared with 187,000 a month for the year-ago period.

But Federal Reserve Chairwoman Janet L. Yellen has said the economy needs to add about 100,000 net new jobs a month to keep up with population growth. And as the Los Angeles Times reports, the labor market may be limited in how much more it can expand as the U.S. nears full employment.

The unemployment rate ticked down a tenth of a percentage point in May to 4.3%, the lowest since 2001. “Since 2012, this has been a tremendous period of steady, solid job growth — historic in many ways — that has slowly absorbed most if not all of the underemployed and unemployed people last year,” Alan MacEachin, chief corporate economist at Navy Federal Credit Union, told The New York Times.

According to the NYT, some skeptics argue that if the labor market were truly stretched, wages would be rising faster. Instead, year-over-year wage growth has declined since the end of last year to 2.5%, only slightly above inflation.

Average hourly earnings increased just 4 cents in May, to $26.22, after a 5-cent gain in April. “The tighter job market is leading businesses to raise pay, but wage growth remains disappointing given that the expansion is now eight years old,” said Gus Faucher, chief economist at PNC Financial Services Group.

Economists said the report is unlikely to deter the Fed from another rate hike. “It is not enough to derail the Fed at all,” said Dan North, chief economist at the credit insurer Euler Hermes North America.

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