U.S. unemployment rate rises despite jobs increase

Employment increased slightly more than forecast in May, but the jobless rate climbed from a four-year low as more Americans entered the labor force.

Payrolls rose 175,000 last month after a revised 149,000 increase in April that was smaller than first estimated, Labor Department figures showed Friday in Washington, D.C. The median forecast in a Bloomberg survey called for a 163,000 gain. The unemployment rate rose to 7.6 percent, from 7.5 percent the previous month.

The slight improvement in the labor market is a sign that some companies are looking beyond fiscal restraint this quarter and are optimistic enough about the prospects for demand in the second half of the year. At the same time, bigger job and wage gains likely will be needed to move Federal Reserve policy makers closer to scaling back record monetary stimulus.

“Things aren’t weakening in the labor market as much as we’d feared,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Conn., who accurately forecast the gain in payrolls. “The unemployment rate rose for the right reasons. More folks are coming back into the labor market, or coming in for the first time, but more important the economy is able to absorb most of them.”

Stock-index futures rose after the figures.

Retailers added jobs in May. Employment also increased at construction companies, education and health services, leisure and hospitality businesses and temporary-help agencies. Manufacturers, however, cut jobs for a third straight month.

While Americans are finding work, wage gains aren’t picking up. Average hourly earnings were little changed at $23.89 in May after $23.88 in the prior month. They were up 2 percent in 12 months ended in May, the same as in April.

Estimates of 90 economists for May payrolls ranged from increases of 80,000 to 290,000. Employment gains averaged 206,000 a month in the first quarter. The agency surveys businesses and households for the pay period that includes the 12th of the month, and there were five weeks between the April and May survey periods.

The household survey, used to calculate the unemployment rate, showed a 420,000 increase in the size of the labor force, exceeding the 319,000 gain in employment and pushing up the jobless rate.

Revisions to the prior two months’ payroll reports subtracted a total of 12,000 jobs to the employment count in March and April.

Private payrolls, which don’t include government agencies, increased 178,000 in May after a 157,000 gain the prior month.

Employment at factories declined for a third month, falling 8,000 in May after a 9,000 decrease in the previous month, Friday’s report showed. While manufacturing is cooling, strength in the auto industry is encouraging hiring. The motor vehicle industry added 2,400 jobs in May.

Employment at private service-providers climbed 179,000 last month. Construction companies added 7,000 workers, and retailers took on 27,700 employees, the most in six months. Temporary-help agencies added 25,600 jobs in May.

The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — decreased to 13.8 percent from 13.9 percent.

The number of discouraged workers fell to 780,000 in May, the fewest since September 2009, according to agency figures that aren’t adjusted for seasonal variations.

For some people like Daniel McCune, the road to employment has been difficult. The 26-year-old has struggled to find work since earning his college degree in 2009.

“It was probably the worst possible time to graduate,” McCune said. “It’s a tough situation to be in, from 2009 to just about now.”

After graduating from Liberty University in Lynchburg, Va., McCune held a Capitol Hill internship and looked for his “dream job” at a U.S. intelligence agency. When it didn’t materialize, he moved in with his parents and took a job at Macy’s. Employers are looking for experience, he said, and he’s had trouble landing interviews.

Fed Chairman Ben S. Bernanke and his fellow central bankers are looking for greater progress in reducing unemployment. Fed policy makers have said they’ll continue their $85 billion-a-month pace of asset purchases until the labor outlook improves “substantially.” Boston Fed President Eric Rosengren and Chicago’s Charles Evans have said they want to see the economy add 200,000 jobs a month before scaling back.

Former Fed economist Vincent Reinhart, who is now chief U.S. economist at Morgan Stanley in New York, says that means policy makers need to see about four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases.

“They’re going to need a substantial run of data to change course,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics in White Plains, N.Y. “To actually do it, the economy not only has to be improved, but it has to be improved in such a way that it can take the strain of the new policy. The economy has to be in a position to take it and I don’t think it is just yet.”

Gross domestic product rose at an annualized rate of 2.4 percent from January through March. Growth will slow to a 1.6-percent pace in the second quarter as the effects of sequestration take hold, before improving to an average 2.4 percent rate in the second half of the year, according to the median forecast of economists surveyed by Bloomberg from May 3 to May 8.

At the same time, growth in home construction and energy has given a boost to companies such as Fluor Corp. The engineering and equipment company based Irving, Texas, expects its global staff to grow from 13,500 to 15,000 by the end of the year, said Peter Oosterveer, president of energy and chemicals.

Wage growth remains “modest”, with pay up between 3 percent and 5 percent in North America and Europe, Oosterveer said at a conference Thursday.

Other companies, from industrial giant Caterpillar Inc. to insurer Genworth Financial Inc., are adjusting payrolls to cut costs. Genworth, based in Richmond, Va., will eliminate 400 jobs as low interest rates squeeze investment income.

Caterpillar, the largest maker of construction and mining equipment, has responded to weaker global sales by delaying capital investments and requiring some employees to take unpaid leave, said Michael DeWalt, director of investor relations for the Peoria, Ill.-based company.

“Within corporate accounting, treasury, tax, about 90 percent of the people are taking three weeks of unpaid leave this year,” DeWalt said at a June 5 conference. “A lot of the actions that we’re taking are all around trying to match the cost base up with what the reality is of sales.”