US Job Growth Forecast: Solid Pace in May
U.S. employers are thought to have hired at a solid pace in May and helped extend the economy’s nearly nine-year expansion, the second-longest on record, despite uncertainty caused by trade disputes.
Economists have forecast that employers added 190,000 jobs last month and that the unemployment rate remained at a 17-year low of 3.9 percent, according to data provider FactSet.
The Labor Department’s May jobs report will be released at 8:30 a.m. EDT Friday.
Economy firm footing
Solid hiring data would coincide with other evidence that the economy is on firm footing after a brief slowdown in the first three months of the year. The economy grew at a modest 2.2 percent annual rate in the January-March quarter, after three quarters that had averaged roughly 3 percent annually.
Some economists remain concerned that the Trump administration’s aggressive actions on trade could hamper growth. The administration on Thursday imposed tariffs on steel and aluminum imports from key allies in Europe, Canada and Mexico. Earlier in the week, it threatened to hit China with tariffs on $50 billion of its goods.
Still, while Trump has made such threats since March, most employers so far haven’t suspended hiring.
Consumer spending up
And consumers have started to spend more freely, after having pulled back in the January-March quarter. That gain could reflect in part the effect of the Trump administration’s tax cuts, which might be encouraging more Americans to step up spending. Consumer spending rose in April at its fastest pace in five months.
Some of the spending reflects more money needed to pay higher gas prices, a potential trouble spot for consumers in the coming months. The average price of a gallon of gas nationwide reached $2.96 on Thursday, up 15 cents from a month ago, according to AAA. Some economists calculate that higher gas costs could offset up to one-third of the benefit of the tax cuts.
More hiring, more growth
Companies are spending more on industrial machinery, computers and software, signs that they’re optimistic enough about future growth to expand their capacity. A measure of business investment rose in the first quarter by the most in 3½ years. That investment growth has been spurred partly by higher oil prices, which have encouraged the construction of more drilling rigs.
Manufacturers have benefited from the healthier business spending and have increased hiring. In April, factories expanded production of turbines and other heavy machinery by the most in seven months.
Macroeconomic Advisers, a forecasting firm, said Thursday that it now foresees the economy expanding at a robust 4 percent annual pace in the April-June quarter, which would be the fastest in nearly four years. That is up from its forecast last week of less than a 3 percent rate for the current quarter.
Wage growth lagging
Yet even with unemployment at a 17-year low, wage growth has been chronically sluggish in most industries, leaving many Americans still struggling to pay bills, particularly as inflation has ticked up.
Average hourly pay rose just 2.6 percent in April from a year earlier, before adjusting for inflation. That’s far below historic trends: Paychecks were rising at roughly a 4 percent pace in 2000, the last time unemployment was this low.
Still, companies are starting to pay more to lure workers from other companies, a trend that could lead to broader pay gains in coming months. Workers who switched jobs received annual pay increases averaging 4 percent in April, compared with average gains of 2.9 percent for those who stayed in their jobs, according to data compiled by the Federal Reserve Bank of Atlanta.
Mark Zandi, chief economist at Moody’s Analytics, said higher pay for job-switchers tends to augur more robust raises for everyone else.
“Employers will have no choice but to adjust their pay scales to ensure wage parity across their entire workforce,” Zandi said.
At the same time, Martha Gimbel, head of economic research at the job listing site Indeed, notes that wages for people who remain in their jobs have actually declined in recent months. That suggests that many employers have yet to worry about their workers being lured away.