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Sharp Fall in U.S. Hiring Saps Chance of Fed Rate Increase in June Sharp Fall in U.S. Hiring Saps Chance of Fed Rate Increase in June
(about 2 hours later)
In a troubling sign that the economic recovery may have stalled, at least temporarily, the government reported on Friday that employers added just 38,000 workers in May. The significant plunge in hiring is likely to push back a decision by the Federal Reserve to raise interest rates. The government reported on Friday that employers added just 38,000 workers in May, a troubling sign that the economic recovery may have stalled, at least temporarily, and a sharp slowdown in hiring that is expected to push back a decision by the Federal Reserve to raise interest rates.
The official unemployment rate dropped to 4.7 percent from 5 percent, but that was primarily a result of Americans dropping out of the labor force. Despite the anemic job gains, the official unemployment rate, which is based on a separate survey of households, fell to its lowest point in nearly a decade, 4.7 percent from 5 percent in April. But the decline was primarily a result of Americans dropping out of the labor force rather than finding new jobs.
“Boy, this is ugly,” said Diane Swonk, an independent economist in Chicago. “The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause.”“Boy, this is ugly,” said Diane Swonk, an independent economist in Chicago. “The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause.”
May’s job totals were affected by the more than 35,000 Verizon workers who were on strike and classified as unemployed by the Labor Department. With those Verizon workers now back on the job, Ms. Swonk and other analysts do expect next month will show an additional gain of 35,000 to 40,000 jobs. “The only good news is that wages held,” Ms. Swonk said. Average hourly earnings were up again, 0.2 percent for the month, for a gain of 2.5 percent for the year, continuing to rise at a faster pace than in recent years.
“The only good news is that wages held,” Ms. Swonk said. Average hourly earnings were up again, 0.2 percent for the month, for a gain of 2.5 percent for the year. The weakness in May’s job totals were somewhat exaggerated because they reflected the Labor Department classification of more than 35,000 striking Verizon workers as unemployed. With those employees now back on the job, the missing strikers should be added back in next month’s report.
While Friday’s report is only a snapshot of the economy and the jobs engine could rev up again, it has sputtered this spring, with the Labor Department shrinking its estimate of March and April’s employment totals by 59,000 since the initial reports. The average monthly gain for the last three months was just 116,000 jobs.
While subject to further revision as well, May’s figures were the lowest monthly growth since September 2010.
Worries about the economy are a common refrain among supporters of Donald J. Trump, the presumptive Republican presidential nominee, as well as among those who are backing Senator Bernie Sanders’s faltering bid to lead the Democratic presidential ticket. Historically, the state of the American economy about six months in advance of the November election has played an outsize role in determining how people vote for president.
Even apart from the distortion created by the Verizon strike, the average monthly job gains so far in 2016 have fallen far shy of the nearly 240,000 average of the last two years, a pace that has helped buoy the economy and cut the jobless figure in half since the depths of the recession.Even apart from the distortion created by the Verizon strike, the average monthly job gains so far in 2016 have fallen far shy of the nearly 240,000 average of the last two years, a pace that has helped buoy the economy and cut the jobless figure in half since the depths of the recession.
The jobs picture showed further weakening as revisions released on Friday to March and April’s figures cut 59,000 from the previous employment totals. Over the last three months, job creation has averaged only 116,000 a month. May’s gains marked the lowest figure since September 2010.
In recent weeks, Fed officials have been consistently signaling their intent to lift rates from the ground level once it is clear that the economy is healthy enough to absorb an increase. Speaking at a forum in Cambridge, Mass., last week, Janet L. Yellen, the Fed chairwoman, said it would be appropriate to increase borrowing costs “in the coming months” if growth continued to pick up and “if the labor market continues to improve.”
The Fed’s policy-making committee has its next three meetings scheduled for mid-June, late July and September.The Fed’s policy-making committee has its next three meetings scheduled for mid-June, late July and September.
“I would say June is off the table,” said Carl Tannenbaum, chief economist at Northern Trust, noting that Fed officials have repeatedly said their approach was “data dependent.” He pointed out that job creation was sluggish, labor force participation declined for the second month in a row and the number of people working part time for economic reasons rose sharply. “It’s disappointing.” “I would say June is off the table,” said Carl Tannenbaum, chief economist at Northern Trust, noting that Fed officials have repeatedly said their decision about when to next raise interest rates was “data dependent.” He pointed out that job creation was sluggish, the labor force participation rate declined for the second month in a row, to 62.6 percent, and the number of people working part time for economic reasons rose sharply.
Investors wrote off the chances of a June rate increase after the latest release. The probability of a June increase, as implied by asset prices, fell from 21 percent to 6 percent in early trading, according to CME Group. The probability of a rate increase by September fell from about two-thirds to roughly 50 percent. Investors wrote off the chances of a June rate increase after the latest release. The probability of a June increase, as implied by asset prices, fell from 21 percent to 6 percent in early trading, according to CME Group. The probability of a rate rise by September fell from about two-thirds, but remained at roughly 50/50 either way.
The sentiment could be summed up by the Tempos’ 1959 hit, “See You in September.” With the summer stretching ahead, the sentiment on Wall Street could perhaps be best summed up by the Tempos’ 1959 hit, “See You in September.”
Hiring across the board was soft, with particularly heavy declines in construction, manufacturing and mining, in addition to the drop in information services as a result of the Verizon strike. Still, unless there are further signs of fresh economic weakness, most economists expect at least one rate increase before the end of the year. The unemployment rate, which the Fed regards as a key indicator, has finally dropped to where it was before the Great Recession began in late 2007.
The Obama administration acknowledged that the slower pace of job gains was disappointing. Apart from the jobs figures, there are several encouraging economic signs, including a surge in home construction and hardy consumer spending. The pace of economic growth for the first three months of the year was a mere 0.8 percent; most analysts expect that it will pick up to about 2.5 percent in the second quarter.
“This month’s report is a reminder of the important work that remains to sustain faster growth in jobs and wages, including investing in infrastructure and job training, implementing high-standards trade agreements like the Trans-Pacific Partnership, and raising the minimum wage,” Jason Furman, the chairman of the council of economic advisers, said in a statement posted on the White House’s website. As for the number of people applying for unemployment insurance, the underlying trend has been encouraging, with jobless claims in recent weeks at their lowest levels since the 1970s.
Donald J. Trump, the presumptive Republican presidential nominee, was quick to react on Twitter, writing “Terrible jobs report just reported. Only 38,000 jobs added. Bombshell!” “To be clear, there is no evidence the economy is slowing into recession,” said Steve Blitz, chief economist of M Science, a research firm.
Worries about the economy are a common refrain among supporters of Mr. Trump, as well as among those who are still behind Senator Bernie Sanders’s bid to lead the Democratic presidential ticket. Some Fed officials have also suggested they are reluctant to raise rates until after Britain holds a referendum later this month on its membership in the European Union. But that concern, too, may soon be in the rearview mirror.
Patrick O’Keefe, director of economic research at CohnReznick, an accounting, tax and advisory firm, argued that “a 5 percent unemployment rate today is a distinctly different indication of labor market slack than a 5 percent unemployment rate would have been before the recession, in 2007.” Thomas Perez, the labor secretary, acknowledged that the jobs report was disappointing. But he said: “The closer you get to the summit of full employment, the more tradeoffs there will be between somewhat slower job growth and rising wages, and that’s what we’re beginning to see here in this recovery.”
If the labor force participation rate had remained constant, nine million more people would be looking for a job. “I would be more concerned about the rest of the softness if it was consistent with other broad trends,” he added.
“Just because people left the work force out of discouragement doesn’t mean they’re not available for work,” he said. “It just means the economy is not generating sufficient jobs at sufficient pay levels to get them back in.” Mr. Trump was quick to react on Twitter, writing “Terrible jobs report just reported. Only 38,000 jobs added. Bombshell!”
A broader measure of unemployment that includes people too discouraged to search for work or who are making do with a part-time job because they cannot find a full-time one, stayed steady at 9.7 percent. It has hovered just below 10 percent for more than six months.A broader measure of unemployment that includes people too discouraged to search for work or who are making do with a part-time job because they cannot find a full-time one, stayed steady at 9.7 percent. It has hovered just below 10 percent for more than six months.
While retiring baby boomers would be expected to bring down the proportion of the population in the labor market, Mr. O’Keefe said he was particularly disturbed by the significant decline among those in their prime working ages. While retiring baby boomers would be expected to bring down the proportion of the population in the labor market, Patrick O’Keefe, director of economic research at CohnReznick, an accounting, tax and advisory firm, said he was particularly disturbed by the significant decline among those in their prime working ages.
“In policy making, the Fed continues to focus on a measure that is maladjusted, that does not reflect the reality of today’s economy,” said Mr. O’Keefe, a former deputy assistant secretary in the Labor Department.“In policy making, the Fed continues to focus on a measure that is maladjusted, that does not reflect the reality of today’s economy,” said Mr. O’Keefe, a former deputy assistant secretary in the Labor Department.
Across generations, many people are still not attached to the work force in the way they had envisioned. “Many may be working in the gray economy, able to pick up work here and there, but not a sustainable job,” he said.Across generations, many people are still not attached to the work force in the way they had envisioned. “Many may be working in the gray economy, able to pick up work here and there, but not a sustainable job,” he said.
Public sector employees — postal workers and bus drivers, teachers and police officers — have also not made up ground lost during the recession. Add in the normal growth that would be needed to keep pace with an expanding population, and there is about a 1.8 million job shortfall in public sector employment, said Elise Gould, an economist at the Economic Policy Institute, a labor-oriented research organization in Washington.Public sector employees — postal workers and bus drivers, teachers and police officers — have also not made up ground lost during the recession. Add in the normal growth that would be needed to keep pace with an expanding population, and there is about a 1.8 million job shortfall in public sector employment, said Elise Gould, an economist at the Economic Policy Institute, a labor-oriented research organization in Washington.
Dan Finnigan, chief executive of Jobvite, a recruiting service used by start-ups, said that “anxiety about the job market among seekers is going up,” with a majority surveyed expressing concern that advancing technology will eliminate their jobs.Dan Finnigan, chief executive of Jobvite, a recruiting service used by start-ups, said that “anxiety about the job market among seekers is going up,” with a majority surveyed expressing concern that advancing technology will eliminate their jobs.
Although job creation has remained steady on average across Jobvite’s platform, Mr. Finnigan said he had observed a noticeable drop in openings at technology companies in California and New York.Although job creation has remained steady on average across Jobvite’s platform, Mr. Finnigan said he had observed a noticeable drop in openings at technology companies in California and New York.
“I think there’s going to be a flight to safety,” he said, with technologically adept workers being lured to larger companies that can offer more cash, more training and more security instead of opting for the prospect of a bigger payout with more risk.“I think there’s going to be a flight to safety,” he said, with technologically adept workers being lured to larger companies that can offer more cash, more training and more security instead of opting for the prospect of a bigger payout with more risk.
Not everyone has seen the weakness in hiring yet. Tom Gimbel, chief executive of LaSalle Network, a Chicago recruiter, said: “In a weak economy, what usually gets cut first and usually gets put on hold first are jobs at the manager to director level — those earning between $75,000 and $125,000 — and I haven’t seen that yet. The market is strong right now. I’ve still got clients hiring.” Hiring across the board was soft in May, with particularly heavy declines in construction, manufacturing and mining.
At the lower end of the pay scale, however, Mr. Gimbel said employers have been thinking about how they will be affected by the Obama administration’s recent decision to raise the salary cutoff for overtime pay. “They’re worried about bringing people in at a certain level,” he said. Starting Dec. 1, employers will have to give time-and-a-half overtime pay to most salaried workers earning up to $47,476, compared with the previous threshold of $23,660. Not everyone has seen weakness in hiring, however. Tom Gimbel, chief executive of LaSalle Network, a Chicago recruiter, said: “In a weak economy, what usually gets cut first and usually gets put on hold first are jobs at the manager to director level — those earning between $75,000 and $125,000 — and I haven’t seen that yet. The market is strong right now. I’ve still got clients hiring.”
At the lower end of the pay scale, however, Mr. Gimbel said employers have been thinking about how they will be affected by the Obama administration’s recent decision to raise the salary cutoff for overtime pay. “They’re worried about bringing people in at a certain level,” he said. Starting Dec. 1, employers will have to give time-and-a-half overtime pay to most salaried workers being paid up to $47,476, compared with the previous threshold of $23,660.
Minimum-wage increases that have already taken effect in some places may be partly responsible for the uptick in average hourly earnings.Minimum-wage increases that have already taken effect in some places may be partly responsible for the uptick in average hourly earnings.
A survey of 220 executives during the first quarter by PricewaterhouseCoopers, or PwC, the accounting and consulting firm, found that a majority planned to increase their head count this year, but the proportion was down from 2015.A survey of 220 executives during the first quarter by PricewaterhouseCoopers, or PwC, the accounting and consulting firm, found that a majority planned to increase their head count this year, but the proportion was down from 2015.
“The first-quarter decline in business confidence is notable,” said Shawn Panson, a partner at PwC. As Jeremy Schwartz, an associate in global strategy and economics at Credit Suisse, advised in an alert: “Don’t panic.”