The US economy added just 38,000 jobs in May – 122,000 fewer than expected and the weakest growth since 2010. The unemployment rate slipped down to 4.7%, the Department of Labor announced on Friday.
The report added to concerns that the US economy is slowing, ahead of a crucial meeting of the Federal Reserve, and was immediately seized on by Republican presidential candidate Donald Trump. “Terrible jobs report just reported. Only 38,000 jobs added. Bombshell!” he wrote on Twitter.
A strike by 40,000 Verizon workers impacted the numbers, the labor department said, and without the strike the number of jobs added would have been 72,000, which is still less than half the expected job growth.
The unemployment rate is now the lowest it has been since November 2007, and job gains in 2016 have slowed sharply from the 240,000 average of the last two years. On Friday, the Department of Labor also cut its assessment of the number of jobs added in March and April by 59,000.
“The weakness in May’s payrolls was widespread. Manufacturing lost 10,000 jobs, construction shed 15,000 jobs and temporary help fell by 21,000,” wrote Paul Ashworth, Capital Economics chief US economist, in a note to investors. “A June rate hike from the Fed is now very unlikely.”
May’s report is the last before the Fed’s next meeting on 14-15 June, when the US central bank may raise interest rates again. The gain was the smallest since September 2010 and is sure to add to speculation that a rate hike could be delayed until July, already uncertainty about Britain’s referendum to exit the EU. That vote will take place on 23 June.
After the economy added 160,000 jobs in April – 40,000 fewer than expected – economists expected the job growth in May to come in at 160,000. Over the past 12 months employment growth had averaged 232,000 jobs a month, but economists expected the 44-day strike of 40,000 Verizon workers to affect the May figures.
The last time Verizon workers went on strike, for two weeks in August 2011, the department of labor reported that the economy added no jobs that month. The following month, however, it reported a growth of 103,000 jobs and noted that the spike partially “reflected the return to payrolls of about 45,000” striking workers.
The recent strike ended last week after the labor department helped Verizon and the union representing the striking workers reach a tentative deal. As job growth slows, Barack Obama has moved to defend his economic legacy. Earlier this week, while speaking in Elkhart, Indiana, he described the US economy as the “strongest, most durable economy in the world” and pointed out that over the past six years, US businesses have created more than 14m new jobs.
“Despite the drop in unemployment, wages are still growing too slowly, and that makes it harder to pay for college or save for retirement,” said Obama, before pointing out that so far this year, wages have grown at a rate of about 3%. Until recently, his administration had described wages as the unfinished business of this recovery.
Economists believe that a wage growth of 3% to 3.5% is necessary to help reach the Federal Reserve’s 2% inflation goal.
Last week, Federal Reserve chair Janet Yellen said that she expects the US labor market to continue to improve and that in the coming months it might be “appropriate” for the Fed to increase interest rates. In December, the Fed increased interest rates for the first time in nearly a decade.
“I’m not sure it plays an important role in our policy making beyond us just monitoring the US data and general global financial conditions and having confidence that things are still on a good track,” Charles Evans, president of the Chicago Fed, told CNBC on Friday. Evans, who is a non-voting member of the Fed’s policy-setting committee, said that he expects two rate hikes this year.
“As the labor market tightens we should see wage growth rise, however it’s clear that we are not at a level consistent with full employment. With wage growth this low, there is simply no threat of wage-led inflation,” said Elise Gould, senior economist at the Economic Policy Institute. “The Fed should bear this in mind when it meets later this month and not be too quick to raise rates and slow the economy.”
A week ago, Yellen said that the US jobs market is nearing full employment.
