US economy adds 280,000 jobs as slight rise in jobless rate signals optimism

The US economy added 280,000 jobs in May – but the unemployment rate rose to 5.5%.

Economists expected US employment to have grown by 225,000 jobs last month, and for the unemployment rate to hold at a seven-year low of 5.4%.

The number of Americans participating in the labor force in May increased by 397,000, causing the labor participation rate to increase from 62.8% in April to 62.9%. This could imply that Americans who have previously stopped looking for work are now feeling more optimistic about the US job market and are once again starting to look for jobs.

“Not only did we have more people working, but we had more people looking for work and that’s actually a positive,” Gus Faucher, senior economist at PNC, told the Guardian.

“If you see an increase in the unemployment rate but it’s due to labor force growth and you have a lot of jobs, then that’s an indication that people are feeling more confident in the job market. They are out there looking for work. We shouldn’t view the increase in unemployment rate as a negative. It’s actually a positive.”

The US unemployment rate is based on the number of Americans looking for jobs. Those who have given up on their job search are not counted. As Americans re-enter the job market and begin to look for jobs anew, they are once again counted as unemployed, thus driving up the unemployment rate.

So far this year, the economy has added an average of 194,000 new jobs a month, a slower rate than the 281,000 jobs created each month in the second half of 2014. On average, about 260,000 jobs were created each month of 2014. Last year was the best year for job growth since 1999. Job creation is expected to slow further by 2016.

“We can’t keep going at 200,000 a month,” said Ethan Harris, co-head of global economic research at Bank of America Merrill Lynch. “That’s not going to happen.”

“We are not going to add 280,000 jobs a month but I certainly think that we are capable of adding 225,000 to 250,000 jobs per month through the rest of 2015,” said Faucher. “That’s about double that we need to keep up with the normal growth in the labor force. I do think that we will see the unemployment rate continue to decline. I think that we will see more people come into the labor force and that we will see stronger wage growth as businesses are forced to bid up wages in order to attract workers.”

Many Federal Reserve officials feel that the economic data is not strong enough to justify raising interest rates this month when they meet on 16-17 June. Federal Reserve chairwoman Janet Yellen did, however, say that an interest rate hike “will be appropriate at some point this year”.

“There are at least some encouraging signs of a pickup so far this year,” Yellen said at the end of May. “The fact that some large companies such as Walmart and Target have announced wage increases for their employees also might be a sign that larger wage gains are on the horizon.”

In May, average hourly earnings increased by 8 cents to $24.96. Over the past year, average hourly earnings have increased by 2.3%. That’s still not enough to impact the average worker. According to the Economic Policy Institute, without the 3%-4% wage growth, average workers will not benefit from the economic growth.

Among other data pointing to economic recovery is the historically low number of jobless claims, which dropped to 276,000 earlier this week. The four-week average is 274,750, and the number of applications for unemployment benefits has remained below 300,000 for 13 weeks.

Three days before the May jobs numbers were released, the US secretary of labor, Thomas E Perez, visited Baltimore and delivered a speech on summer jobs. During his speech, the secretary spoke about youth unemployment and the unemployment rate of black Americans, which is twice that of white Americans.

“Despite progress in recent years, the unemployment rate for young people between 16 to 24 years old is still 11.6%,” he said. “If you’re an African American in that age group, you have about a 1 in 5 chance of being out of work.”

After dropping to 9.6% in April, the unemployment rate for black Americans once again rose to 10.2%. The unemployment rate for white Americans remained unchanged at 4.7%.

The unemployment rate for American teenagers aged 16 to 19 went up to 17.9% from 17.1% in April.