June 5, 2015 / 5:16 PM / 4 years ago

Big holes remain in labor market despite blowout U.S. jobs report

WASHINGTON (Reuters) - A surge in job creation and higher wages in May triggered talk the United States was finally entering a “sweet spot” that would push the Federal Reserve closer to a long-awaited rate hike.

Behind the headlines, however, data showed a troubling picture that the long-term unemployed and discouraged workers were still being left behind, a key concern that has been repeatedly highlighted by Federal Reserve Chair Janet Yellen.

Friday’s data showed the United States added 280,000 jobs in May versus expectations for 225,000 and that wage growth nudged up to 2.3 percent from a year earlier, prompting markets to start betting on an October rate hike compared with December.

Despite the surge in new jobs, the headline unemployment rate rose to 5.5 percent as more people entered the labor force, showing the economy is still not creating enough work on a sustainable basis, some economists say.

The jobs that were created remain primarily in the lower- paid end of the service sector - restaurants, leisure and retail - and wage gains were primarily concentrated in managerial jobs. For non-supervisory jobs the pace of paycheck growth was 2.0 percent year-on-year in May.

The Washington Center for Equitable Growth calculates that “healthy” nominal wage growth of 3.5 percent will only be achieved when the prime age employment ratio hits 79 percent for six months versus the current 77.2 percent. It says that metric won’t be hit until September 2017.


The number of people working part time who wanted to work full time ticked up in May to 6.7 million from 6.6 million and the labor force participation rate USLBFB=ECI is stuck around 62.9 percent, signaling the economic recovery is not complete.

The U-6 unemployment rate USUDEP=ECI, a broad measure that includes unemployed, those working part time but who say they want full-time work and those marginally attached to the labor force, was stuck at 10.8 percent. The number of people unemployed for 27 weeks or more was at 2.502 million, the lowest since late 2008 but still well above levels seen before the 2007-2009 recession.

The concern that the labor market is not fully healed is one that has been repeatedly highlighted by Yellen who said recently that the bloated part-time numbers showed “labor market slack.”

More recently, a number of Fed rate setters have come out and warned over economic data. In the first quarter the U.S. economy shrank 0.7 percent and the second quarter recovery has been tepid so far as consumers have not responded to lower gasoline prices by spending their money on other items.

“Even though job growth was solid, it needs to be sustained over a longer period of time in order to significantly tighten the labor market to the point where we finally see significant wage growth,” wrote Elise Gould, an economist at the Economic Policy Institute, a left-leaning Washington think tank.

Additional reporting by Lucia Mutikani, Howard Schneider, Ann Saphir, Mike Flaherty; Editing by Andrea Ricci

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