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02.06.2017

U.S. job growth slows, unemployment rate drops to 4.3 percent

U.S. job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labor market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3 percent.

Nonfarm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the Labor Department said on Friday. The economy created 66,000 fewer jobs than previously reported in March and April.

May's job gains marked a sharp deceleration from the 181,000 monthly average over the past 12 months. Job growth is slowing as the labor market nears full employment. Last month's job gains could still be sufficient for the Federal Reserve to raise interest rates this month.

"The weak job growth number isn't a disaster because it still keeps up with population growth," said Paul Diggle, senior economist at Aberdeen Asset Management. "Today's numbers probably won't stop the Fed from raising rates this month. But they might well influence what happens next."

The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

The unemployment rate fell one-tenth of a percentage point to its lowest level since May 2001. It has dropped five-tenths of a percentage point this year. Last month's decline came as people left the labor force. The survey of households from which the jobless rate is derived also showed a drop in employment.

Economists polled by Reuters had forecast payrolls increasing by 185,000 jobs last month and the unemployment rate holding steady at 4.4 percent. The closely watched employment report was released less than two weeks before the Fed's June 13-14 policy meeting.

U.S. financial markets are almost pricing in a 25 basis point increase in the Fed's benchmark overnight interest rate at that meeting, according to CME FedWatch.

The dollar fell against a basket of currencies on the data, while U.S. government bond prices rose. U.S. stock index futures trimmed gains.

The modest payrolls increase could raise concerns the economy was struggling to gain speed after growth slowed in the first quarter.

Minutes of the Fed's May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, "most participants" believed "it would soon be appropriate" to raise borrowing costs.

The U.S. central bank raised interest rates by 25 basis points in March. Data on consumer spending and manufacturing have offered hope that growth picked up early in the second quarter after gross domestic product increased at a tepid 1.2 percent annualized rate at the start of the year.

The Atlanta Fed is forecasting GDP increasing at a 4.0 percent pace in the second quarter.

Source: Reuters
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