Many of the jobs added in May were at lower-paying businesses such as restaurants… (Kevork Djansezian, Getty…)
WASHINGTON — The nation kept up its moderate pace of job growth in May, a reassuring sign that the American economy is moving forward despite federal spending cuts and little help from a lackluster global economy.
Employers in the U.S. last month added 175,000 net new jobs, although many of them were at lower-paying businesses such as restaurants and retail stores. Manufacturing payrolls dropped for the third-straight month.
The overall monthly job gains were slightly above analysts' expectations.
Stocks rose sharply after Friday's report from the Labor Department, sending the Dow Jones industrial average up more than 200 points. The rally apparently reflected investors' view that the data were weak enough that the Federal Reserve would not pull back its monetary stimulus very soon.
"This report was certainly friendly to the idea that the Fed is going to maintain its aggressive policies," said Gary Schlossberg, senior economist at Wells Capital Management in San Francisco.
Policymakers want to see "substantial improvement" in the employment outlook before ending its $85-billion-a-month bond purchases, which have helped lower long-term interest rates and lift asset prices.
The central bank also has said it probably would keep short-term interest rates near zero as long as the jobless rate was above 6.5% and inflation remained low.
Despite the job gains last month, which were more than enough to absorb the natural increase in the workforce, the unemployment rate ticked up to 7.6% from 7.5% in April.
That was the first increase since the year began with a jobless figure of 7.9%, and it was attributed largely to idle workers jumping back into the labor market — an indication that people may be feeling more hopeful about their hiring prospects.
Recent surveys have shown improved consumer confidence about the economy. Stocks and home prices have moved higher, and the nation's 4-year-old recovery seems to be weathering setbacks from the national budget cutbacks that began March 1.
In May, federal payrolls shrank 14,000, bringing to 45,000 the total number of U.S. government jobs lost in the last three months. Analysts are expecting federal job losses to widen in coming months as the effects of the so-called sequester take hold.
Hiring in the private sector, meanwhile, held up fairly well, although the pace has moderated since winter.
From March through May, private employers have added an average of 163,000 jobs a month. That is down from 236,000 in the prior three-month period.
One big factor in the slowdown is manufacturing, which has lost jobs in each of the last three months, including 8,000 in May.
Experts said the drop-off in manufacturing largely reflected the weak economic output in the current quarter and the fact that factories built up too much inventory last winter.
"Production got ahead of demand late last year and early this year," said Daniel Meckstroth, chief economist at Manufacturers Alliance for Productivity and Innovation, a research group.
"The good news is that it's temporary," Meckstroth said, noting that factory activity and hiring should start to pick up along with the economy later this year. Global trade will also play a role in U.S. manufacturing. "Because Europe is in recession, China is redirecting [its goods] to the U.S.," he said.
The rising U.S. trade deficit with China this year — it is up 2% to $93.2 billion through April — has prompted renewed calls from some lawmakers and economists for Washington to get tougher with the world's second-largest economy, especially on Beijing's currency policy.
"Various countries are managing their currencies to get an edge on exports," said Jared Bernstein, the former chief economist to Vice President Joe Biden, in discussing Friday's jobs report. "It's very tough to bring unemployment down when you face that kind of pressure."
Bernstein urged President Obama, who is meeting Friday and Saturday with Chinese President Xi Jinping, to bring up the currency issue during their summit in the Palm Springs area.
Another concern is that May continued a pattern in which many of the new jobs are relatively low-paying. Retail trade and temporary-employment businesses combined added 53,000 jobs last month. Home-health services accounted for more than half the 11,000 healthcare jobs added, and the gaming and amusement-business sector fattened its payrolls by 12,500 people.
But no sector has been growing as fast as restaurants and drinking establishments, which added 38,000 jobs in May and over the last 12 months have created 337,000 positions. That is more than the total jobs added by healthcare employers during the same period.
"Restaurants always want to hire workers, but in a good market, the jobs go unfilled," said Dean Baker, co-director of the Center for Economic and Policy Research, in a note to clients. "In this job market, workers see no alternatives."