U.S. added 223,000 jobs in May; unemployment at 3.8%

Average earnings rose by 8 cents an hour and are up 2.7 percent over the past year

The Labor Department released its official hiring and unemployment figures for May on Friday, providing the latest snapshot of the U.S. economy.

— 223,000 jobs were added last month. Wall Street economists had expected an increase of about 190,000, according to Bloomberg.

— The unemployment rate was 3.8 percent, down from 3.9 percent in April and the lowest since early 2000.

— Average earnings rose by 8 cents an hour and are up 2.7 percent over the past year.

The Takeaway

By just about any measure, the labor market is very healthy. The unemployment rate for May was at lows not seen since the heady days of the dot-com bubble. After tepid gains in March and April, economists had been looking for a rebound, and May’s figure confirms their hunch.

Policymakers at the Federal Reserve are almost certain to raise interest rates when they meet this month and have said they expect at least one more increase later this year, most likely in September or December. The stately pace of the Fed’s campaign to tighten monetary policy has reassured Wall Street, which has been edgy lately over trade tensions and the prospect of a populist-style government in Italy.

Most economists expect the momentum to continue, although the further drop in the unemployment rate and the healthy increase in average hourly earnings may well stoke fears of inflation and, in turn, a more hawkish Fed.

Wages, Wages, Wages

Diane Swonk, an economist with Grant Thornton, said the great conundrum in the current economic environment was why wage growth had been so modest. After all, a tighter labor market should prompt employers to raise salaries to keep the workers they have and lure new ones, right?

In theory, yes, but in practice it hasn’t been working out that way — and everything from slow productivity growth to the decline of unions and digital disruption has been cited as a reason.

“This is the last shoe to drop in the labor market,” said Torsten Slok, chief international economist at Deutsche Bank. “It’s just a matter of time before wages start going up more strongly, but there’s frustration that it hasn’t happened yet, even though unemployment is the lowest it has been in almost 18 years.”

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