Business

US economy adds 280,000 jobs in May

Job seekers at jobs fair Image copyright Getty Images

The US economy added 280,000 jobs in May, the US Labor Department has said.

The increase was more than analysts had expected and the biggest this year. Economists described it as "encouraging".

The jobless rate, which is based on a different survey, crept up to 5.5% from 5.4%, but this was explained by more people looking for jobs.

Average earnings rose 0.3% compared with the previous month, to $24.96 an hour.

This is a measure closely watched by policymakers as they assess when to start raising interest rates.

Consistently higher wages, as well as the improving jobs market, will add to the argument for a rate increase, which most observers currently expect to happen in September, rather than at its next meeting in June.

"More people working more hours and making more money is a very virtuous combination for growth," said Tom Simons from Jefferies.

"The May employment report is very encouraging."

Return to growth?

The economy is expected to return to growth in the second quarter, after an unexpected contraction in the first three months of the year.

It shrank by 0.7% between January and March but that was seen by many as an aberration, largely caused by an exceptionally harsh winter and a West Coast ports strike that severely damaged exports.

The Labor Department also revised the jobs figures from March and April. March was revised up to 119,000 from 85,000, while April was revised a touch lower to 221,000 from 223,000.

It means that over the past three months, companies have added an average of 207,000 jobs.

"Job gains occurred in professional and business services, leisure and hospitality, and health care," the Labor Department said.

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Analysis: Michelle Fleury, New York business correspondent

The US labour market continues to heal.

Jobs are being created and wages are rising. Even the slight increase in the unemployment rate can be seen as a positive sign - as more people are looking for work.

The labour participation rate - which counts those in employment or those who are looking - rose to 62.9%.

So is this jobs report strong enough to give the Federal Reserve - America's central bank - the green light to raise interest rates this year? They've been near zero for nearly seven years.

Certainly the International Monetary Fund would like the Fed to wait until next year, when there is more of a rebound in wages and inflation.

But after this Friday's jobs report, many on Wall Street now think the odds of a move in the second half of 2015 have just gone up.

Reaction

On Thursday, the International Monetary Fund advised the Federal Reserve to hold off raising interest rates until next year.

"Only 24 hours later, the IMF's suggestion that the Fed should wait until 2016 looks very dated,'' said Paul Ashworth from Capital Economics.

"At this stage, this evident strength in the labour market probably isn't enough to persuade the Fed to hike rates by July, but it definitely makes a rate cut by September probable.''

Chris Williamson, chief economist at the research firm Markit agreed that Friday's figures "raised the likelihood" of a rate increase in September. But he added that the central bank would "be watching the data keenly in coming months to seek reassurance that the economy is not losing too much momentum, with eyes on the impact of the strong dollar in particular".

The US government welcomed the report, but said it would not be complacent.

"Although the job market has made considerable progress throughout this recovery, challenges remain for our economy and there is more work to do," a statement from the White House said.

Image copyright Getty Images
Image caption Federal Reserve chair Janet Yellen is assessing when to start raising rates.

Analysis: Andrew Walker, BBC World Service Economics Correspondent

This is a reasonably strong jobs report. There is less to the rise in unemployment than meets the eye. It reflects a reduction in the number counted as "not in the labour force".

That covers people not looking for work. If they start looking, they join the ranks of the unemployed and add to the jobless number, until they find work.

It's not unusual to get that kind of effect when things are going reasonably well. It can be a sign that people have started thinking it's worth making the effort to look for a job.

There was one slightly disappointing aspect to the report: an increase in the number of people working fewer hours than they want to.

Federal Reserve chair Janet Yellen has in the past referred to the data on part time work as one reason for regarding the jobs market as not so strong as the headline unemployment rate suggests.

Still, an interest rate rise this year does now look a little more likely.

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