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Jobs market loses steam in May


The U.S. economy added a disappointing 138,000 jobs in May and gains in March and April were significantly downgraded, the U.S. Department of Labor reported. Despite clear signs that the labor market is slowing down, analysts doubted that weaker May numbers would prompt the Federal Reserve to delay an expected hike in interest rates at its June meeting.

May’s figures followed less than stellar job gains in April (revised downward to 174,000 from 211,000) and an especially weak March (revised downward to 50,000 from 79,000). This is a combined 66,000 jobs less than previously reported.

jobmarket“Today’s May jobs report showed that the labor market has lost some steam,” said Doug Duncan, chief economist at Fannie Mae. “Notably, the three-month moving-average gain has steadily declined from about 200,000 in February to 121,000 in May.”

Duncan still believes the Fed will raise rates at the June 13-14 meeting, although a quarter-percent hike in the federal funds rate can no longer be viewed as a certainty.

“This report, combined with other factors, including declines in auto sales, raises questions about the recent hawkish tone of Fed officials, who have hinted at potentially more rate hikes and a start of the process of balance-sheet shrinking this year,” Duncan said. “For the near term, we believe that today’s report does not meet the high bar required for the Fed to stand pat on the fed funds rate at its meeting later this month. However, uncertainty looms large for both the fiscal and monetary policy outlooks over the next year.”

Should the Fed hold the line on rates for another few months, it would help ease the pressure on homebuyers by keeping mortgage rates in check, said Steve Hovland, director of research for HomeUnion.

“Real estate could be well-served if the Fed kicks the can down the road to September,” Hovland said. “The spring and summer buying season already produces a seasonal uptick in home prices, so the last thing the market needs is an interest rate hike corresponding with the beginning of summer.”

Between April and May, the home-construction industry added 2,000 jobs, up from 1,000 in the prior month, said Mark Fleming, chief economist for First America. Despite the uptick, he called the pace “a disappointment” that implied just modest growth in housing starts. More workers are needed to ease housing shortages, he said.

“The pace of construction-job growth remains a significant impediment to more housing starts,” Fleming said.

The unemployment rate ticked down to a 16-year low at 4.3 percent; however, that decline came about because a large number of people left the labor force. Wages rose by four cents to $26.22 an hour.  

Industries adding lots of jobs in May included health care (up 24,000) and professional and business services (up 38,000). The mining sector (up 7,000 jobs) also continues to recover and has added 47,000 jobs since hitting a low point in October 2016 with the drop in oil prices. 


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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