Hiring slowed substantially in May as employers added 138,000 jobs but the disappointing showing likely won’t stop the Federal Reserve from raising interest rates this month.
The unemployment rate, which is calculated from a different survey, fell from 4.4% to 4.3%, lowest since May 2003, the Labor Department said Friday.
Economists surveyed by Bloomberg expected 180,000 job gains.
Businesses added 147,000 jobs. Federal, state and local governments lost 9,000.
Also discouraging is that job gains for March and April were revised down by 66,000. March’s was revised to 50,000 from 79,000, and April’s to 174,000 from 211,000.
The labor market was largely expected to return to form last month after volatile weather made for sharp gyrations the first five months of the year. Mild temperatures pulled forward hiring to January and February, particularly in industries such as construction and leisure and hospitality. That, along with cold and snowy weather, led to a sharp retreat in March, which, in turn, left some pent-up demand that lifted hiring in April.
Several economists have said the weather effects had played out by May, and so job growth was expected to roughly hew to its most recent three-month average of 174,000. But Jim O’Sullivan, chief U.S. economist of High Frequency Economics, noted that seasonal adjustments can be especially tricky in May, prompting him to forecast just 140,000 employment gains. The dip, he said, would not reflect the fundamentally sturdy job landscape.
Economists, in fact, said it was unlikely that even sluggish hiring in May would keep the Fed from raising its key short-term interest rate by a quarter percentage point at a mid-June meeting. Fed officials approved similar hikes in December and March after hoisting rates just once the previous decade. Many analysts expect the economy to grow at a healthy 3% annual rate in the current quarter after meager 1.2% growth the first three months of the year.
Average monthly job growth is expected to slow to about 170,000 this year from 180,000 last year and 226,000 in 2015, . That’s because employers are struggling to find available workers now that the unemployment rate is near rock-bottom. Yet even about 100,000 payroll additions a month would be enough to further nudge down the jobless rate, and the tight market is expected to push upstill-measured wage growth, juicing spending and the economy.
Most other indicators have shown no slowdown in hiring. Payroll processor ADP estimated that businesses added 253,000 jobs last month. And initial jobless claims, a gauge of layoffs, have hovered near 40-year lows.
But the retail industry has shed 50,000 jobs the past three months as brick-and-mortar stores shutter amid a seismic shift to online shopping. Goldman Sachs says the trend will continue to reduce monthly job gains by about 10,000.