WASHINGTON – U.S. hiring slowed to a near-standstill in May, sowing doubts about the economy’s health and complicating the Federal Reserve’s efforts to raise interest rates.
While unemployment slid from 5 per cent to 4.7 per cent, the lowest since November 2007, the rate fell for a troubling reason: Nearly a half-million jobless Americans stopped looking for work and so were no longer counted as unemployed.
Employers added just 38,000 jobs in May, the fewest in over five years.
Less-educated workers bore the brunt of the hiring slump, with a quarter-million high school dropouts losing their jobs in May. That has perpetuated a long-term trend toward a two-tiered job market, with college-educated adults more likely to be employed and earning steady raises.
“The shockingly low payrolls gain in May provides further evidence that the economy is showing clear signs of slowing,” said Laura Rosner, an economist at BNP Paribas.
The much-weaker-than-expected figure raised doubts that the Federal Reserve will increase short-term interest rates at its next meeting in mid-June or perhaps even at its subsequent meeting in July. Many analysts had expected an increase by July.
On Wall Street, the Dow Jones industrial average closed down 32 points, for a loss of 0.2 per cent.
The disappointing report spilled into the presidential race, with Donald Trump referring to it on Twitter as a “terrible jobs report” and a “bombshell.” The figures come just days after President Barack Obama touted his economic record in Elkhart, Indiana.
Americans particularly worried about the economy have been more likely to support outsider candidates such as Trump and Democratic Sen. Bernie Sanders.
Trump’s support has also come disproportionately from adults without college degrees, and Friday’s report served as a stark reminder that less-educated Americans have continued to lose economic ground even as overall hiring and growth have picked up since the Great Recession.
Essentially all of the 7 million jobs added over the past decade belong to workers with at least some college experience. The number of high school graduates with jobs is 3 million lower than 10 years ago.
“The high school jobs are gone and they’re not coming back,” said Anthony Carnevale, director of the Georgetown University Center on Education and Workforce. “It’s driven by a fundamental shift from an industrial economy to a post-industrial economy.”
Craig Lloyd, 27, has mostly worked part-time jobs in restaurants in Wichita, Kansas, since graduating from high school 10 years ago. Some paid as little as minimum wage, while his most recent position as a sous-chef paid $12 an hour.
Three months ago, he started his own business selling burritos out of a friend’s food truck on weekends.
His wife is returning to school to get her degree, but he doesn’t plan to do so himself. “I’ve really put off getting a higher education, because of the debt that you can incur,” Lloyd said.
The hiring stall could be temporary, economists noted. There have been hiring lulls before in the seven-year recovery.
But job gains in March and April were also revised downward on Friday, leaving average monthly hiring at a pace of just 116,000 in the past three months. That’s sharply below last year’s average of nearly 230,000.
The share of Americans who are working or searching for jobs — a figure known as the labour force participation rate — fell in May to 62.6 per cent, near a four-decade low.
Separately, Lael Brainard, a Fed board member and ally of Chair Janet Yellen, signalled Friday that the Fed should be in no hurry to act, especially after the bleak jobs report.
The Fed meets next on June 14-15. Economists now see little chance of a rate increase at that time. The Fed raised the short-term rate last December after holding it at nearly zero for seven years.
Fed officials may not keep investors guessing for long: Yellen will speak Monday in a closely watched address that may show how she has interpreted Friday’s report.
The May job gain was lowered by the Verizon workers’ strike, which depressed hiring in the telecom sector by 37,000.
In addition, manufacturers, construction companies and temporary help agencies all shed jobs. Retailers, hotels and restaurants added jobs, but at a slower pace than in recent months.
Employers probably cut back on hiring after the economy grew at just a 0.8 per cent annual rate in the January-March quarter.
Yet Friday’s dismal jobs report was a surprise in part because most recent economic reports have been encouraging: Consumer spending surged in April. Home sales and construction have also increased. Sales of new homes reached an eight-year high in April.
Most economists expect growth will rebound in the April-June quarter to about a 2.5 per cent annual pace.
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