U.S. unemployment drops to 4.3% after modest May hiring

U.S. unemployment drops to 4.3% after modest May hiring

The unemployment rate is forecast to hold steady at 4.4 percent, the lowest in almost a decade.

Job growth in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities and government, showed little change over the month. Besides the hiring pullback in May, the government on Friday revised down its estimate of job growth in March and April by a combined 66,000.

The jobs report is a closely watched barometer of the USA economy and one of the metrics the United States central bank considers as it sets interest rates.

But because most of its positions are entry-level jobs geared for younger workers, the company has been able to pay them in part through bonuses rather than hourly raises.

An alternative measure of joblessness that takes into account discouraged workers and the underemployed fell to 8.4 percent, its lowest reading since November 2007. It's only when employers face a shallow pool of job applicants that they tend to feel compelled to raise pay in hopes of hiring people who fit their needs. Economists were expecting a nonfarm payrolls gain of 185,000 in May alongside a steady unemployment rate of 4.4% and a 0.2% increase in average hourly earnings.

Even though the jobs report did not meet expectations, the May figure was still strong enough to absorb new workers entering the labor force, based on Fed projections.

The 2016 May jobs report stunned everyone when the USA only added 38,000 jobs (it was later revised up a little). Companies in that sector increased their payrolls by 37,000 in May after shedding 7,000 net positions the previous month.

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An influx of job seekers can inflict a drag on pay growth.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.22. And whatever meaningful pay raises that exist are going disproportionately to managers and supervisors. Workers generally enjoy higher incomes once they generate more value per hour on the job.

Mark Zandi, chief economist at Moody's Analytics, estimates that monthly job growth above 80,000 or so should cause the unemployment rate to fall.

"It would have taken a horrendous report today to make the Fed think twice about a June rate hike", said James Smith, developed markets economist at ING. If that trend continued in May, a falling U-6 would point to a strengthening economy despite weak growth during the first three months of the year.

"We would be surprised if wages were still running under 3 percent, for example, when we get to the end of 2018", said Chris Rupkey, managing director at MUFG Union Bank.

The industry has added an average of 46,000 jobs per month thus far this year, in line with the average monthly job gain in 2016.

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