U.S. employers added a robust 280,000 jobs in May, indicating that the economy may be back on track after starting 2015 in a slump.
The Labor Department said Friday that the unemployment rate ticked up from 5.4 percent in April to 5.5 percent in May. But that occurred for a good reason: Hundreds of thousands more people sought jobs in May, and not all found them.
Last month's strong job growth suggests that employers remained confident enough to keep hiring even after the economy shrank during the first three months of the year. The government also revised up its estimate of job growth in March and April by a combined net 32,000.
Construction and health care companies the drove the May job growth. On the negative side, persistently cheaper oil led energy companies to shed workers for a fifth straight month.
Still, average hourly wages rose only 2.3 percent from a year earlier. Tepid pay gains has been a persistent problem for the economy. Average hourly earnings of private-sector workers rose by 8 cents, or 0.3 percent, to $24.96 in May.
Over the past three months, the economy has added an average of 207,000 jobs, a decent gain though lower than last year's average of 263,667.
Consumers, the main driver of the U.S. economy, remain fairly cautious. Factory orders have dropped. But Friday's solid jobs report could help confirm the economy's vitality.
Auto and home sales are accelerating despite otherwise slow-spending consumers. More big employers, such as Wal-Mart, have unveiled pay hikes.
Those factors could power faster growth, fuel job gains and boost wages. If they do, a broader economic recovery than the one that's existed in the six years since the Great Recession officially ended could emerge.
Over the past 12 months, around 3 million jobs have been added. Those additional paychecks helped increase spending on housing and autos. Sales of newly built homes have surged 23.7 percent through the first four months of 2015 compared with a year ago, government data show. Rising demand for new homes could lead construction firms to ramp up hiring.
Americans bought 1.64 million cars and trucks in May, the most since July 2005. If that trend were to endure, it would benefit a manufacturing sector that's added a scant 4,000 jobs since January.
Employers seem to be envisioning a healthier economy, given that the weekly number of people applying for unemployment benefits — a proxy for layoffs — has remained under a historically low 300,000 for more than four months. By holding on to nearly all their workers, businesses are ensuring that they will have the capacity to respond to greater customer demand.
But the economy faces other challenges. The dollar has appreciated about 19 percent in the past year against other major currencies. That trend has made U.S. goods costlier overseas, thereby squeezing exports and the U.S.-based branches of foreign companies.
Nor has cheaper gasoline delivered much help. Instead of sparking the wave of consumer spending that many economists had expected, a nearly 45 percent drop in oil prices since July has damaged a U.S. economy increasingly reliant on energy drilling. The energy industry has shed workers and cut orders for pipelines and equipment.
In addition, the labor-force participation rate, which ticked up to 62.9 percent from 62.8 percent in May, is still near its lowest level since the late 1970s.
The setbacks have been substantial enough that the International Monetary Fund on Thursday said it thinks the Federal Reserve should hold off on raising short-term interest rates until 2016. IMF Managing Director Christine Lagarde, saying a rate increase could disrupt the economy, urged the Fed to await signs of wage growth.
Fed Chair Janet Yellen has said she expects to raise rates this year if the economy continues to improve, thereby ending nearly seven years of record-low rates.
Falling unemployment usually leads to fewer people seeking work, forcing employers to boost wages. But plenty of people are still searching for jobs. The aftermath of the recession has left 8.5 million people unemployed and seeking work, about 1.3 million more than were jobless before the downturn began in late 2007.
Companies often increase pay when their workers become more productive. Yet productivity fell at a 3.1 percent annual rate in the first quarter — a sharper drop than the decline estimated a month ago, the government said Thursday.