Ouch! U.S. Economy Created 38K Jobs In May, 160K Was ExpectedBy Kitco News
Friday June 03, 2016 08:31
(Kitco News) - The U.S. labor market lost significant momentum last month; however, economists have been anticipating a skewed number because of the strike from Verizon workers.
Friday, the U.S. Labor Department said 38,000 jobs were created in May, massively below consensus forecasts, which were calling for 159,000 jobs. Not only was the headline data significantly weaker than expected, but data in March and April were revised lower. March employment data was revised to 186,000 jobs from 208,000; April’s data was revised down to 123,000 from 160,000.
This is the lowest employment gains the U.S. economy has seen since fall 2010.
Economists were expecting the Verizon labor dispute to cut about 35,000 jobs in last month’s payrolls. While Verizon employees went back to work Wednesday, they were considered unemployed in April because they did not receive a salary.
Looking at some of the highlights of the report, the manufacturing sector lost 10,000 jobs last month with 7,000 losses in machinery and 3,000 jobs gone in future and related products.
The mining sector also continues to shed jobs, losing 10,000 in May, of those 6,000 jobs were lost in the sector’s support activities. In total mining has shed 207,000 jobs since its peak in 2014.
The unemployment rate fell to 4.7%, down from 5.0 reported in March. Economists were expecting to see a slight drop to 4.9%. However, the rise in the unemployment rate was the result of a decrease in the participation rate to 62.6%.
The only bright spot in the report was the fact that wages saw a modest increase. Average hourly earnings increased by 5 cents last months to $25.59. On an annual basis average wages have increased 2.5%, in line with expectations.
According to some economist the weaker than expected data will push back expectations for a Federal Reserve rate hike later this month. Gold is seeing a major benefit as a result of the shifting expectations. In initial reaction August Comex gold futures rallied $22.2 hitting a high at $1,238.60 an ounce.
“The Fed won't want to hike in two weeks after this report and July suddenly seems far less likely than the 50/50 probability in markets,” said Adam Button, currency analyst at Forexlive.com. “This isn't a good time to buy US dollar dips.”
Avery Shenfeld, senior economist at CIBC World Markets described the disappointing employment report as “shocking.”
“The jobs data were much more than just about a telecom strike, with the goods sector dropping 36K and temporary help also weak on the service side. We still see Q2 growth as decent, but we'll need a few more months of improved economic indicators to get the Fed back on the rate hike plan,” he said.