Employers in US add 38,000 workers, fewest in almost six years

Job seekers wait in a line that stretches down the block from a youth centre at an employment fair in New York, on May 3, 2012.
Job seekers wait in a line that stretches down the block from a youth centre at an employment fair in New York, on May 3, 2012.PHOTO: AFP

WASHINGTON (BLOOMBERG) - Employers in May added the fewest number of workers in almost six years, reflecting broad cutbacks that may raise concern about United States growth and prompt Federal Reserve policy makers to put off an increase in interest rates.

The addition of 38,000 workers, the fewest since September 2010, followed a 123,000 advance in April that was smaller than previously estimated, a Labor Department report showed Friday. The increase in May was less than the most pessimistic forecast in a Bloomberg survey. The jobless rate dropped to 4.7 per cent, the lowest since November 2007, as Americans left the labour force.

Smaller employment gains reduce the odds of a more pronounced upturn in household spending and economic growth after a poor start to the year.

Fed officials will take into account more judicious hiring, at a time when corporate profits are on a downswing and global markets remain weak, as they consider whether to raise interest rates again.

"It will put a dent in optimism about the second-quarter rebound," Thomas Costerg, senior economist at Standard Chartered Bank, said before the report. "If job growth softens it'll be a signal that the US economy is a bit more fragile than we think."

The report showed a broad hiring slowdown, including declines in payrolls in construction, manufacturing and mining. Job growth at private service producers slowed, with employment climbing by just 61,000. That brought the diffusion index, which measures the breadth of hiring, to 51.3 in May, the lowest since February 2010.

Furthermore, Americans who are working part-time though would rather have a full-time position, or the measure known as part-time for economic reasons, climbed to 6.4 million in May from 6 million a month earlier.

A bright spot in the report was worker pay. Average hourly earnings rose by 0.2 per cent in May after a 0.4 per cent gain in April that was a bit stronger than initially reported. Worker pay increased 2.5 per cent over the 12 months ended in May.

The report showed weakness in sectors vulnerable to slow overseas markets and the cutbacks in energy investment, along with hiring slowdowns in services. Factories cut employment for the third time in the last four months, while construction companies shed 15,000 jobs.

Fed policy makers, who are considering when to next raise interest rates after lifting them in December for the first time in almost a decade, have said they expect continued improvement in the job market.