Eye on the prize

Fed can raise rates despite one bad jobs figure

One bad jobs figure doth not a Federal Reserve excuse make. Only 38,000 new US positions were added in May, the worst monthly result in six years. Even so, payrolls have increased by a solid 116,000 jobs on average over three months and hourly wages rose again. The bigger picture means the central bank can feel comfortable in raising interest rates later this month, even if it probably won't.

The latest figures contain disappointing elements. Labour participation fell by 0.2 percentage point to 62.6 per cent, which contributed to a decline in the unemployment rate to 4.7 per cent from five per cent. Job growth for March and April also was revised downward to 309,000 positions from 368,000.

A strike at Verizon skewed May's results. The uncommonly large work stoppage, which ended a week ago, took more than 35,000 people out of the workforce. Other estimates, however, paint a rosier scene. On Thursday, for example, payroll services firm ADP and Moody's Analytics said the private sector added 173,000 jobs last month.

Job expansion was also bound to slow down after the strong recovery. Over the last 12 months, the United States has added an average of 219,000 positions, a difficult pace to sustain. Fed Chair Janet Yellen has said the country needs to add fewer than 100,000 jobs a month to cover new entrants into the workforce. Meanwhile, wages grew for the third consecutive month. In May, the gain was five cents from April, lifting average hourly pay to $25.59.

Other numbers suggest steady improvement, too. US consumer spending jumped by one per cent in April, the biggest increase in six years, the Commerce Department said earlier this week. And though inflation remains below the central bank's two per cent goal, it has been rising.

The jobless rate has hovered around five per cent since the Fed nudged rates up in December. Yellen has said for months that the United States is near full employment and Fed officials have been signaling a rate hike. The 38,000 jobs figure may be low, but it is just one month. Interest rates, on the other hand, have been too low for far longer.