May 29, 2012 / 9:00 PM / 6 years ago

U.S. jobs growth seen picking up in May

WASHINGTON (Reuters) - U.S. employment growth likely regained some momentum in May as weather-related distortions that had held back hiring began to fade, suggesting the economy’s moderate recovery is still on track.

A woman walks past a "Jobs" banner hung above the Chamber of Commerce in Washington February 6, 2012. REUTERS/Kevin Lamarque

Employers are expected to have added 150,000 new workers to their payrolls, according to a Reuters survey of economists, after creating a meager 115,000 new positions in April, the fewest in six months.

That would bring non-farm employment growth closer to its 176,000 a month average of the past three months and offer assurance the U.S. economy remains on a steady growth path even though China is slowing and some European economies are back in recession.

“There were weather and timing effects that hit the April number, but things are coming back to normal,” said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh.

“Right now the underlying job growth in the U.S. is somewhere between 175,000 and 200,000 per month. That is an economy that is doing good, but not great.”

Unseasonably warm winter weather is believed to have brought forward hiring between December and February, especially in the construction and retail sectors. Those gains unwound in March and April, causing a step back in the labor market’s recovery. An early Easter also weighed on April’s payrolls count.

The Labor Department will release jobs figures for May at 8:30 a.m. (1230 GMT) on Friday.

Should the report meet expectations, that could allow the Federal Reserve to save its ammunition, in the event clear signs of trouble emerge later - either from Europe’s worsening debt crisis or the so-called fiscal cliff at home.

Minutes of the U.S. central bank’s last policy meeting showed officials less enthusiastic about launching a third round of asset purchases to drive interest rates down further. The Fed has held overnight rates near zero since late 2008 and has bought $2.3 trillion in bonds to try to spur stronger growth.

Still, a strong jobs report would do little to ease pressure on President Barack Obama, who faces a tough re-election vote in November. The employment level is still 5 million jobs below what it was in December 2007, when the recession started.

Analysts say the economy needs to create roughly 125,000 jobs a month to keep the unemployment rate steady. The jobless rate, which has dropped by 1 percentage point since August, is expected to hold steady at a three-year low of 8.1 percent in May.


The drop in the unemployment rate in April was due to people abandoning the search, and there is a risk that more discouraged job-seekers joining their ranks could push the unemployment rate down again in May.

Added to that is the fact that more long-term unemployed Americans are dropping off benefits rolls. According to the National Employment Law Project, about 236,300 people lost eligibility for extended long-term benefits in eight states in May. That compares with 133,900 in April.

“Some people will drop out of the labor force, but it also creates a more immediate incentive to find work. Both help to push down the unemployment rate,” said Sam Coffin, an economist at UBS in Stamford, Connecticut.

Economists will keep an eye on the labor force participation rate - the share of working-age Americans who either have a job or are looking for one - after it dropped to a 30-year low in April.

A small bounce back is expected in May as a large class of graduates enters the labor market. Economists will also watch out for revisions to the prior months’ payrolls numbers.

“Employment gains have ultimately been revised higher in each of the past eight months, by an average of 47,000,” said Peter Newland, a senior economist at Barclays in New York.

“A similar-sized revision to April would mark six consecutive months of above-150,000 job growth, modest in comparison to previous recoveries from deep recessions, but more than sufficient to push the unemployment rate lower.”

The private sector is expected to account for all the job gains in May, adding 160,000 new positions. Government payrolls are seen dropping by 10,000, dragged down by ongoing belt-tightening by local governments.

Construction employment is expected to rebound in May after declining in the prior three months, driven by an increase in residential construction.

Manufacturing, the recovery’s star performer, is expected to show another month of gains. However, the pace of activity is cooling and regional Fed manufacturing surveys have shown mixed readings of factory employment in May.

An improvement is seen in leisure and hospitality payrolls after they slipped in April.

In light of the high unemployment rate, average hourly earnings are seen rising a slight 0.2 percent.

With hours in most industries back to their pre-recession levels, the average workweek is seen steady at 34.5 hours. It has barely budged from this level since December.

UBS’ Coffin said businesses had largely run out of room to increase worker productivity and were being forced to step up hiring.

Reporting by Lucia Mutikani; Editing by Dan Grebler

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