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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 7 hours later)
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 government reported on Friday that employers added just 38,000 workers to their payrolls in May, a sharp slowdown in hiring that is expected to push back a decision by the Federal Reserve to raise interest rates.
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. The latest snapshot suggested that the economic recovery might have stalled this spring, at least temporarily.
Despite the anemic job gains, the official unemployment rate, (which is based on a separate survey of households), fell to 4.7 percent, its lowest point in nearly a decade. 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.”
“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 rose again, 0.2 percent for the month, for a gain of 2.5 percent for the last 12 months, an encouraging sign that many more working Americans are finally beginning to enjoy some benefits from a tighter labor market.
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. In close presidential races, the economy’s direction in the months leading to the November election has often played an important role in influencing voters, with credit or blame going to the party that occupies the White House. This is hardly a typical presidential race, though, and Friday’s report is only one indicator of the economy.
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. Still, after revving up over the last two years, the nation’s job engine appears to have sputtered, with the Labor Department shrinking its initial estimates of March and April’s employment totals by 59,000. The average monthly gain for the last three months was 116,000 jobs.
While subject to further revision as well, May’s figures were the lowest monthly growth since September 2010.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. The weakness in last month’s job totals was somewhat exaggerated because the estimate reflected the Labor Department classification of more than 35,000 striking Verizon workers as unemployed. With those people now back on the job, the missing strikers should be added back in the June report.
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 that distortion, 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 Fed’s policy-making committee has its next three meetings scheduled for mid-June, late July and September. Given the uncertainty about the economic outlook, the Federal Reserve is now likely to put off any decision to raise interest rates at its next meeting in mid-June and probably avoid lifting rates at its July meeting as well.
Lael Brainard, a Fed governor and an ally of Ms. Yellen’s, described the May report as “sobering” in a speech on Friday afternoon. Lael Brainard, a Fed governor and an ally of the Fed chairwoman, Janet L. Yellen, described the May report as “sobering” in a speech on Friday afternoon.
Ms. Brainard said the weak job growth was a reminder that the strength of the recovery should not be taken for granted, and said she did not see clear evidence the economy had rebounded from a weak winter. Ms. Brainard said the weak job growth was a reminder that the strength of the recovery should not be taken for granted, and she said she did not see clear evidence the economy had rebounded from a weak winter.
“Recent economic developments have been mixed, and important downside risks remain,” Ms. Brainard, who has pushed for the Fed to move slowly in raising interest rates, said at the Council on Foreign Relations in Washington. “In this environment, prudent risk management implies there is a benefit to waiting for additional data.”“Recent economic developments have been mixed, and important downside risks remain,” Ms. Brainard, who has pushed for the Fed to move slowly in raising interest rates, said at the Council on Foreign Relations in Washington. “In this environment, prudent risk management implies there is a benefit to waiting for additional data.”
Aside from the sluggish job creation, 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. After the Friday report, investors wrote off the chances of a June rate increase. The probability, as suggested by asset prices, fell to 6 percent from 21 percent in early trading, according to the CME Group. The probability of a rate rise by September fell from about two-thirds, but it remained about 50/50 either way.
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.
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.”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.”
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. Unless there are further signs of fresh economic weakness, however, most economists expect at least one rate increase before the end of the year. The unemployment rate, which the Fed regards as an important indicator, has finally dropped to where it was before the recession began in late 2007. And first-time claims for unemployment insurance have remained at low levels not seen since the 1970s.
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. On the other side of the ledger, the labor force participation rate declined for the second consecutive month, to 62.6 percent, and the number of people working part time for economic reasons rose sharply.
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. Apart from the jobs figures, there are several encouraging economic signs, including a surge in home construction and hardy consumer spending. Most analysts expect the pace of economic growth to pick up to about 2.5 percent over the next three months from the first quarter’s 0.8 percent.
“To be clear, there is no evidence the economy is slowing into recession,” said Steve Blitz, chief economist of M Science, a research firm.“To be clear, there is no evidence the economy is slowing into recession,” said Steve Blitz, chief economist of M Science, a research firm.
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. Voters’ perceptions of the economy are often a driving force in presidential elections. “It’s always good to be the party in power when the economic cycle is turning up in an election,” said Mark J. Rozell, a political scientist at George Mason University. “It’s never advantageous when there is a downturn close to the election.”
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 trade-offs there will be between somewhat slower job growth and rising wages, and that’s what we’re beginning to see here in this recovery.” This time around, though, history may not be the best guide, Thomas E. Mann, a resident scholar at Berkeley’s Institute of Governmental Studies, warned: “We should beware normalizing an abnormal election.”
“I would be more concerned about the rest of the softness if it was consistent with other broad trends,” he added. “Under these circumstances,” he said, “there’s a good chance that the degree of a candidate’s personal unfavorability could be more important than the economy.”
As for the economy’s impact, Mr. Mann said changes in personal income, which are on the rise, tend to sway voters at the margins more than the jobless rate or the pace of job creation.
Hillary Clinton, the likely Democratic nominee, has closely aligned herself with President Obama’s economic policies and record-long streak of job gains. Worries about the economy are a more 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 last-ditch bid to lead the Democratic ticket.
Mr. Trump was quick to react on Twitter, writing “Terrible jobs report just reported. Only 38,000 jobs added. Bombshell!”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. 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 trade-offs there will be between somewhat slower job growth and rising wages, and that’s what we’re beginning to see here in this recovery.”
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. He, too, continues to be disturbed by the persistently low labor participation rate.
“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. Retiring baby boomers would be expected to bring down the proportion of the population in the labor market. But Patrick O’Keefe, director of economic research at CohnReznick, an accounting, tax and advisory firm, pointed to the significant decline among those in their prime working ages as well. Because so many discouraged job seekers have dropped out of the work force, he said, the relatively low official jobless rate is not capturing the true magnitude of the economy’s underlying weakness.
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. “In policy making, the Fed continues to focus on a measure that is maladjusted,” Mr. O’Keefe 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. 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.
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. The heaviest job losses in May were in the construction, manufacturing and mining industries.
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. Not everyone has seen a softening. 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. ”
“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. At the lower end of the pay scale, workers have been hungry for an increase in wages that is finally starting to materialize as employers find it harder to fill jobs. Minimum-wage increases that have already taken effect in some places may be partly responsible for the uptick in average hourly earnings.
Hiring across the board was soft in May, with particularly heavy declines in construction, manufacturing and mining. Payroll growth was disappointing, said Jeremy Schwartz, an associate in global strategy and economics at Credit Suisse, but it was also consistent with a tightening labor market. As he advised in an alert: “Don’t panic.”
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.
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.
As Jeremy Schwartz, an associate in global strategy and economics at Credit Suisse, advised in an alert: “Don’t panic.”