The 175,000 jobs employers added last month were the latest evidence that the economy could be poised for stronger growth in coming months despite tax increases and government spending cuts.
The unemployment rate rose to 7.6 percent from 7.5 percent in April, the Labor Department said Friday. But that increase was only because more people began looking for work, a healthy sign. About three-quarters of them found jobs.
Investors seemed pleased that the report hit a sweet spot: The job growth showed the U.S. economy’s sturdiness. Yet the gain was modest enough that many analysts think the Federal Reserve will continue making bond purchases intended to stimulate growth for at least several more months. The purchases have eased long-term loan rates and lifted stock prices.
The Dow Jones industrial average surged more than 200 points.
“Job growth is still a bit weaker than desired,” said Russell Price, an economist at Ameriprise Financial. But the steadiness of the job gains “is a testament to the economy’s much improved underlying fundamentals.”
The housing market is strengthening, auto sales are up and consumer confidence has reached a five-year peak. Stock prices are near record highs, and the budget deficit has shrunk.
The American economy’s relative strength contrasts with Europe, which is gripped by recession, and Asia, where once-explosive economies are now struggling.
U.S. employers have added an average of 155,000 jobs in the past three months. But the May gain almost exactly matched the average increase of the previous 12 months: 172,000.
Reflecting a recent trend, many of the jobs added in May were lower-paying ones, which aren’t likely to fuel as much consumer spending and economic growth as higher-paying jobs that have disappeared.
Yet many Americans appear more optimistic about their job prospects: 420,000 people started looking for work in May. As a result, the percentage of Americans 16 and older either working or looking for work rose to 63.4 percent from a 34-year low of 63.3 percent in April.
This is called the labor force participation rate. Higher participation can raise the unemployment rate. That’s because once people without a job start looking for one, they’re counted as unemployed.
Labor force participation has been falling since peaking at 67.3 percent in 2000. That’s partly the result of baby boomers retiring and dropping out of the workforce.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, thinks an improving job market will lead more Americans to seek jobs. He predicts that the participation rate will level off around 63.5 percent.
The unemployment rate is derived from a survey of households, which found that more people started looking for work in May. Because some didn’t find jobs right away, the number of unemployed rose 101,000 to 11.7 million.
The job gain for the month is calculated from a separate survey of employers.
Some signs in the report suggested that the federal government’s deep spending cuts in domestic and defense programs and scant growth in much of the rest of the world are weighing on the U.S. job market. Weakness overseas has slowed demand for U.S. exports.
Manufacturers cut 8,000 jobs. The federal government shed 14,000. Both were the third straight month of cuts for those industries. Over the past three months, the federal government has cut 45,000 jobs.
The number of temporary jobs rose by about 26,000. The economy has added temporary jobs for eight straight months, suggesting that employers are responding to more demand but aren’t confident enough to hire permanent workers.
Industries that rely directly on consumer spending hired at a healthy pace — a sign of confidence that consumers will keep spending. Retailers added 28,000 jobs. Restaurants added 38,000.
Those categories include many lower-paying occupations. By contrast, the recession sharply cut jobs in higher-paying industries such as manufacturing, construction and finance, which have yet to recover.
Mark Vitner, an economist at Wells Fargo, calculated that about 60 percent of the jobs created in May were in lower-paying fields. Even in a professional field such as health care, one of the biggest job creators was home health care services, where care providers earn about $10 an hour, according to government data, he said.
“It’s hard to get meaningful income growth with these types of jobs,” Vitner said.
Rob McGahen, 29, has felt the trend personally. After receiving his master’s in business administration in 2007, McGahen worked for Boeing in St. Louis, buying parts for military planes.
Last year, after moving with his wife to Pensacola, Fla., McGahen sought work for about nine months. He settled for a part-time job in the produce section of Publix, a supermarket chain.
“It’s certainly not a long-term plan,” McGahen said. “But it keeps me busy. It keeps my skills from atrophying.”
Stock markets have gyrated in the past two weeks on speculation that the Fed would soon start to taper its $85 billion-a-month in bond buying — a step that could raise rates and cause stock prices to fall.
“I think the Fed will stay on hold,” said Nariman Behravesh, chief economist at IHS Global Insight. “They want to see numbers above 200,000 on payroll jobs on a consistent basis before they start to taper off.”
Behravesh said he thinks the Fed will maintain its pace of bond buying through this year before scaling it back in 2014.
“Today’s report is perhaps the perfect number for nervous investors,” said James Marple, Senior Economist at TD Economics. “It is strong enough to point to continued economic recovery but not so strong as to bring forward expectations of Fed tapering.”
Other analysts who have predicted that the Fed would start trimming its bond purchases later this year said they didn’t think Friday’s jobs report would change that timetable.
The Fed has been buying bonds to keep loan rates near record lows to encourage consumers and companies to buy and spend. Other central banks, notably the Bank of Japan, have also been acting aggressively to keep borrowing costs low to try to rejuvenate economic growth.
Low rates make investments that pay interest unattractive. As result, many investors have bought stocks instead. Money pouring into stocks drove the Dow to a record high last month. Stocks have since slipped from their peaks but are still up more than 20 percent since November.
The economy grew at a solid annual rate of 2.4 percent in the first three months of the year. Consumer spending rose at the fastest pace in more than two years. But economists worry that the federal spending cuts and higher Social Security taxes, which started Jan. 1, might be slowing growth in the April-June quarter to an annual rate of 2 percent or less.
Jeff Platts, CEO of Sky Zone, a Los Angeles-based company that runs indoor trampoline parks, said consumers appear more willing to spend than they did a couple of years ago. He’s more confident about expanding and hiring.
Sky Zone plans to add 18 locations this year to its 38 existing sites. That will create about 70 full-time and more than 1,000 part-time jobs.
“In most markets we’re in, parents are back to spending on their kids,” Platts said.