Employment indicators reveal that the recession-hit economy is slowly getting up on its feet, reports Team IFM
Washington, June 12: US job situation returned to its pre-recession peak in May with hiring going on full steam ahead, confirming expectations that the economy has finally snapped back from a winter slump.
Payrolls pushed past their pre-recession peak for the first time in May, a milestone that has been five years in the making.
Government data released on Friday revealed an economy healing yet marked by deep scars. The downturn, which began six and a half years ago, has left many Americans feeling worse off than they did the last time the economy had roughly the same number of jobs it does at present.
May witnessed the creation of 217,000 jobs, more than enough to surpass the 138.4 million jobs that existed when the recession began in December 2007. But even as the unemployment rate has improved from 10 percent at the depth of the recession to 6.3 percent, the economy still lacks its former energy.
The May job increase was in line with market expectations, according to the Labour Department, and data for March and April was revised to show 6,000 fewer jobs created than previously reported.
“This was a very solid report with no obvious warts to detract from the underlying message of sustained improvement in economic activity,” Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.
In fact, May marked a fourth straight month of job gains above the 200,000-mark, a stretch last witnessed in January 2000, even though it also was a slowdown from the 282,000 jobs created in April, when hiring was still recovering from the unusually harsh winter.
HIRING PICKING UP
The nation has finally regained the 8.7 million jobs lost during the recession, with 8.8 million more people working now than at the trough in February 2010. But the working age population has since increased 10.6 million while 12.8 million Americans have dropped out of the labour force.
Markets are bullish over the jobs report.
The pace of hiring adds to data from automobile sales to services and factory sector activity that have suggested economic growth at a pace of more than 3 percent this quarter after shrinking at a 1 percent rate in the first three months of the year.
Other data on Friday showed consumer credit in April recorded its largest advance since November 2001, a sign that the household sector was feeling more secure in taking on debt.
Last month, the unemployment rate held steady at a five-and-a-half-year low of 6.3 percent as some Americans who had given up the search for work resumed it. A measure of underemployment fell to its lowest level at 12.2 percent since October 2008. The gauge includes people who have given up looking for a job and those working part-time because they cannot find full-time jobs.
Economists expect more discouraged workers to re-enter the labour force over the course of the year. While that would be a sign of confidence in the job market, it could slow the decline in the jobless rate.
Of the 9.8 million jobless Americans, the percentage of long-term unemployed people has come down from 35.3 percent in April to 34.6 percent. The median duration of unemployment fell to 14.6 weeks, the shortest stretch in five years and a sharp drop from April.
“We are making progress, but we still have a very long way to go,” Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania told Reuters.
Employment gains in May were broad-based.
The number of jobs in the manufacturing sector went up by 10,000, expanding for the 10th straight month. Further increases are expected as auto sales outpace inventories.
Autos sold in May at a 16.7 million annualised rate, the strongest since February 2007, according to Bloomberg quoting data from Ward’s Automotive Group.
Construction payrolls rose by 6,000. It was the fifth consecutive month of gains, but the pace is slowing as the housing sector struggles to regain momentum.
There were sturdy job gains in leisure and hospitality, and professional and businesses services. Healthcare added 33,600 workers, presumably boosted by the implementation of the Affordable Care Act. Government payrolls increased 1,000, a fourth straight monthly increase. Retail employment also rose.
FED WATCHING
Fed officials are watching the labour market as they get closer to completing their bond-purchase programme later this year and start considering the timing of the first interest-rate increase since 2006. The Fed’s Open Market Committee has pared its monthly asset-buying to $45 billion and said further reductions in measured steps are likely.
The return of discouraged job seekers and drop in long-term unemployment will be welcomed by the Federal Reserve, which has cited low labour force participation as one of the reasons for maintaining an extraordinarily easy monetary policy.
The workforce increased by 192,000 people last month, declining sharply in April. That left the share of working age Americans who are employed or at least looking for a job at 62.8 percent.
Average hourly earnings rose five cents, or 0.2 percent. On a year-over-year basis, earnings were up a tad at 2.1 percent, suggesting little build-up in wage inflation. The average hourly earnings are being closely watched for signs of wage pressures that could signal dwindling slack in the labour market.
But earnings in some sectors, such as mining and information services, are rising at a much faster pace.
“We’re seeing the continuation of solid payrolls gains, which is an accomplishment for the economy,” Bloomberg quoted Laura Rosner, an economist at BNP Paribas in New York as saying. “We’re slowly moving in the direction of stronger earnings growth, which is really what we need to see for the recovery to continue.”
BNP Paribas had forecast a 215,000 gain in payrolls.
The broad-based gain in employment points to an improvement in business confidence that raises the odds that headcounts will continue to grow. The government report also shows that incomes climbed, the ranks of the long-term unemployed decreased and businesses took on more full-time help – evidence of the type of economic progress that will keep the Federal Reserve paring record monetary stimulus.
“It’s a difficult time for Fed policymakers,” Peter Molloy, president at Edison Investment Research in New York told Reuters. He said the central bank normally would be raising interest rates by now given the level of the jobless rate but wanted to go slowly because the recovery has been weak by historic norms.
The Fed has kept benchmark overnight rates pegged near zero since late 2008 and is not expected to begin nudging them up until well into next year.