U.S. employers added 248,000 jobs in May, boosting confidence in the staying power of the recovery and giving President Bush good news on the economic front to offset the liability the conflict in Iraq has become to his re-election campaign.
Employment numbers for April and March were also revised upward in yesterday's Labor Department report, bringing to 1.2 million the number of jobs created so far this year.
That's the best five-month showing since the economy faltered in 2000. Still, the unemployment rate remained unchanged at 5.6 percent as more workers joined the hunt for jobs, the Labor Department said.
Gains were reported across the board among manufacturing, construction, retail and service workers, leading analysts to declare an end to the jobless recovery that began in November 2001. However, the economy has recovered fewer than half the 3.4 million jobs lost since December 2000.
"I think we can accept the fact that the economy is starting to create jobs again and we're back to a more normal job creation mode," said Joel Naroff, president of Naroff Economic Advisors of Holland, Pa.
The strong showing, which beat economists' consensus forecast of 215,000 new jobs, shows that businesses are confident enough to start hiring and investing in new equipment after holding back for months amid uncertainty about whether the recovery would last, analysts said. Of particular note was a 32,000-job increase in the hard-hit manufacturing sector.
Wage increase
The report showed that wages also crept higher, increasing the likelihood that Federal Reserve policy-makers will raise interest rates this month in order to slow the tsunami of money flowing into the economy and contributing to inflation pressures.
"No good economy goes unpunished, and the punishment is higher interest rates," Naroff said.
Average weekly earnings rose 0.3 percent in May, according to the Labor Department, and 2.5 percent over 12 months.
"The last part of the inflation puzzle was wages, and in this report we've begun to see an acceleration in wage gains. That basically completes the puzzle," Naroff said.
Markets rose on the news, with the Dow Jones industrial average gaining 46.91 points, or 0.5 percent, to close at 10,242.82. The S&P 500 index rose 5.87 points to 1,122.51, and the Nasdaq climbed 18.36 to 1,978.62.
Most economists expect job growth to continue in the range of 180,000 to 225,000 per month for the rest of the year. The economy has added an average of 316,000 jobs per month for the past three months, which is roughly in keeping with the growth seen in the 1994 recovery, said Alan Levenson, chief economist for T. Rowe Price Associates, the Baltimore-based mutual fund company.
"We shouldn't be so surprised that after so much of a decline in employment and such delayed signs of recovery that we would see some better numbers," he said.
Political view
Bush administration officials seized on the report to vindicate the president's economic policies, which have been criticized by opponents for favoring the wealthy and failing to create jobs.
"The president's timely action to lift the burden of tax relief on millions of American families and businesses has resulted in a strong and stable recovery," said Treasury Secretary John Snow.
The Kerry campaign issued a statement calling the job gain a "step forward," but said the recovery is still the worst since the Great Depression.
"Families are still struggling in this economy. Jobs are scarce, and those lucky enough to have one are making $1,500 less each year," said Allison Dobson, a spokeswoman for Democrat John F. Kerry.
Jeffrey Frankel, a former member of President Bill Clinton's Council of Economic Advisors, said a strong jobs recovery could hurt Kerry's election prospects if voters focus on the recent gains rather than the losses over the past three years.
"But the statement about Bush being the first president to lose jobs since Herbert Hoover on net is pretty powerful, so both sides have something they can claim," he said.
Snow predicted last fall that the economy would create 2 million jobs in a year. The Council of Economic Advisors subsequently came under fire this year when it said the economy would produce 2.6 million jobs, a statement the president was forced to back off of amid a continued slump in employment.
While that number still appears to be a stretch, some economists are no longer balking at Snow's more conservative forecast of 2 million new jobs.
"Trust me, no one was giggling louder than I when the Council of Economic Advisors came up with that forecast of 2.6 million jobs," said Richard Yamarone, economist with Argus Research Corp. "I thought, what were they smoking when they came up with that estimate? It's not looking so silly now."
But Yamarone and others point to lingering uncertainty that could temper the pace of the economic recovery. Sharply higher fuel prices, higher medical costs and fears of terrorism continue to weigh on the minds of corporate executives.
"Corporate chieftains are not too happy with these uncertainties, so they may push back hiring intentions until later in the year," Yamarone said.
As long as the perception of risk doesn't grow beyond current levels, consumers will continue to spend, helping to propel the economy, said Steven Cochrane, senior economist for Economy.com in West Chester, Pa.
Breadth of hiring
Cochrane pointed to the breadth of the hiring as evidence of widespread confidence. In addition to the rise in manufacturing jobs, the construction industry added 32,000 jobs, professional services added 64,000 jobs, and the leisure sector gained 33,000.
Only a few industries remained in a trough, he said. Airline employment continued to suffer as intense competition and rising fuel prices added to an already bleak picture. The telecommunications industry also continues to lag, making it among the last of the large-scale technology-based industries still losing jobs, Cochrane said.
"It [the jobs report] was right along with expectations, which means that there's sort of some stability to this trend," Cochrane said.
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