Stable Unemployment but Weak Job Gains define the U.S. Labor Market

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A microscopic gain in jobs and a steady unemployment rate indicate gradual improvements in America’s job market.  Two separate reports on the labor market indicate improvements for workers, with both the Department of Labor and ADP, a private payrolls firm, showing muted robustness for Americans.

The Labor Department’s weekly study of unemployment claims showed 267,000 initial claims in the last week, roughly stable from the prior week. That caused the 4-week moving average rate of claims to fall 0.6% to 276,750, helping keep initial claims at their lowest point since 1973.

Seasonally-adjusted insured unemployment also remains on a downward trend, remaining at 1.6% from the prior rate.  Meanwhile, ADP also released a study that showed private sector employment rose by 173,000 jobs in April, but only 38000 in May.

Since ADP services a large number of private employers, ADP’s data is a good indicator of private business demand for workers. The increase was boosted by small businesses, which increased their labor force by 76,000 people. Ahu Yildirmaz, head of ADP Research Institute, noted that large businesses are remaining a weaker part of America’s economy. "Job creation appears to have slowed as we move further into 2016,” he said, adding, "Job creation appears to have slowed as we move further into 2016."

Weakness in the data remained for manufacturing, which lost 3,000 jobs; however, all other industries gained jobs. Trade, transportation, utilities, and business services industries lead the gains, helping service-providing sectors gain 175,000 jobs in total.

Commenting on the data, Moody’s Chief Economist Mark Zandi made a cautious note, arguing that the job gains remain weak and America needs the job growth rate to accelerate so that America’s economy can grow and consumers can regain confidence.  “Growth has moderated this spring as energy companies and manufacturers shed jobs. Retailers are also more circumspect in their hiring. Despite the recent slowdown, job growth remains strong enough to reduce underemployment,” he said.

The labor market has been a primary focus of the Federal Reserve, with several heads of regional Fed banks arguing that an improvement in the labor market, including improving wage growth, is urging them to raise interest rates to control a further increase in Americans’ purchasing power that could cause stronger inflation. Inflation, as measured by the Personal Consumption Expenditure (PCE) metric, remains extremely low, however, at just 1.1%, according to the latest reading.