US jobs gain in May despite sequester cuts

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US jobs gain in May despite sequester cuts WASHINGTON: The US economy continued to add jobs in May at a moderate pace despite worries that the government’s sequester spending cuts would cause private businesses to slow hiring.

The 175,000 net new jobs added last month confirmed that the economy continues to grow steadily if not spectacularly, with strength showing in the retail sector as well as the recovering construction industry.

Analysts said the numbers were better than expected and could, if sustained over a few more months, lead the Federal Reserve to begin reeling in its $85 billion a month bond purchase program aimed at stimulating the economy by pressing interest rates lower.

The latest numbers were, however, below the January-April average.

The dollar strengthened nearly a half-cent against the euro on the news, to trade at $1.3209 per euro, and the 30-year US treasury bond yield jumped to 3.31 percent from 3.25 percent late Thursday.

Stocks, in recent weeks pressed lower by a rise in bond yields, also surged, with the S&P 500 index gaining 1.0 percent in morning trade.

Analysts said the jobs numbers were just weak enough to convince share investors that the Fed would not move quickly to taper the open-ended quantitative easing (QE) bond buying program.

“The May Employment Report supports the notion of a modest recovery, although we continue to expect that it may not be a smooth one,” said Jason Schenker at Prestige Economics.

“Today’s report also supports the notion that ‘QE Infinity’ is unlikely to end soon,” he added with a touch of sarcasm.

At 175,000, the May job creation numbers were a firm gain from April’s 149,000 net new positions, and surprised on the upside.

Economists had lowered their expectations for the economy’s capacity to add jobs amid worries about the impact of government spending cutbacks, Europe’s continued recession, and weakness in the Chinese economy.

The unemployment rate rose 0.1 percentage points to 7.6 percent, a move that economists downplayed as statistically not significant, while the number of Americans officially jobless was essentially unchanged at 11.8 million.

Some details in the data pointed to an even firmer jobs market: the labor force grew by 420,000 last month, the number of those who have dropped out of the labor force fell by 231,000, and the number of Americans working part-time because they have to fell by 12,000.

Nevertheless, the number of jobs created was still lower than the 193,000-a-month average for the first four months of the year.

The jobs growth was not seen as strong enough to persuade the Federal Reserve to begin trimming QE stimulus, even as some central bank policy makers worry the program could set off a burst of inflation.

“After all, the unemployment rate is at 7.6 percent, which is a long way from 6.5 percent,” said Schenker, citing the target rate for unemployment the Fed set for tightening monetary policy.

“Decent but not fabulous,” Jennifer Lee of BMO Capital markets said about the report.

US bond yields had surged over the past month in anticipation that the economy was growing fast enough that the Fed would soon cut back QE, even though Fed chairman Ben Bernanke has stressed the need to see several more months of data before taking such a step.

Harm Bandholz of UniCredit Economics said the 175,000 figure was in the low range of what the Fed probably wants to see each month to begin trimming QE.

“What is still missing, though, is the confirmation that the improvement is sustained.”

The details of the data were somewhat uneven. Job creation was still all in the private sector, but reductions by federal and local authorities had slowed, with a net loss for the month of just 3,000 government jobs.

Retail trade jobs jumped by 27.7 million, and construction added seven million jobs.

On the other hand, temporary help services added 25.6 million, a sign of weakness in overall hiring trends.

“These are all low-paying sectors. It is worth noting that the job growth reported in these sectors is more an indication of the weakness of the labor market than the type of jobs being generated by the economy,” said Dean Baker, of the Center for Economic and Policy Research.

 

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