Jobs Report: May Unemployment Rate Rises to 7.6 Percent as 175,000 Jobs Are Added

June 7, 2013 — -- Unemployment in May ticked up to 7.6 percent as employers added 175,000 jobs, a tepid report that may cheer investors hoping for interest rates to stay low, boosting stocks.

Economists including JJ Kinahan, chief derivatives strategist of TDAmeritrade, had expected the addition of 167,000 jobs with the unemployment rate unchanged at 7.5 percent.

The industries with the strongest employment growth in the last month were temporary help agencies, which added 26,000 jobs; and food services, which added 38,000 jobs in May and 337,000 over the past year.

Kinahan said he was optimistic about higher private sector employment, "a very bullish sign especially combined with the fact that the losses were in the government sector."

"When we see strong recoveries, this is a pattern that is often seen is that the private sector starts to expand as the economy overall begins to expand," he said.

Another positive note was the expansion of jobs in the retail sector, which alludes to "a stronger economy overall as the consumer continues to spend."

However, the Labor Department revised the number of jobs added in April lower to 149,000 from 165,000. March's number was revised higher to 142,000 from 138,000.

Still, Kinahan said, "Overall this was a good report in that it shows a continuation of a positive trend."

The civilian labor force increased by 420,000 to 155.7 million in May.

Stephen Bronars, senior economist with Welch Consulting, said people are starting to come back and look for work, but he was not encouraged by the labor force participation rate, which "changed little" at 63.4 percent, the Labor Department said.

"The participation rate is still quite low, even after adjusting for the aging of the U.S. workforce, so we can expect the unemployment rate to stay in this range -- near 7.5 percent -- throughout the rest of the year if employment growth continues at the modest and steady pace of about 175,000 new jobs per month," Bronars said.

Bronars said he was concerned that the unemployment rate for adult African-American men over 20 years old jumped to 13.5 precent from an average of about 12.7 percent over the past three months.

Another concern, said Bronars, is that over the past year, employment has grown at the same rate as the U.S. adult population. Some 58.6 percent of adults were working in May 2013, the same as a year ago, which is a "bit of a disappointment," Bronars said. He said the employment/population ratio would ideally increase above 60 percent.

Bronars said employment growth that maintains a constant employment to population ratio is "not ideal" given that the economy is still recovering from a very deep recession.

"The hope is that job growth would rebound faster than it has. If we were starting from a position of strength it would be very good to have jobs grow at the same rate as the population," he said.

Today's report is being closely watched by investors, who are worried that the Fed's low-interest rate policy may be ending, removing a major mover for the stock market, which has finally regained the levels last seen before the 2007-2008 recession.

At the opening bell, the Dow Jones Industrial average rose 84 points to 15,183.

The Federal Reserve said it expects high unemployment into 2015, and it has previously said it plans to keep its benchmark interest rate near zero if the inflationary outlook is manageable and the unemployment rate exceeds 6.5 percent.

Kinahan said he had his eye on the average workweek, which was unchanged at 34.5 hours in May.

"If the average workweek stays the same or goes down and the jobs number doesn't meet it, that's where you have to be concerned," he said.

While the addition of jobs may be a good sign for a recovering economy, a shorter workweek might indicate lower stability or quality of those jobs. With the approaching summer, students are on the hunt for seasonal jobs.

Kinahan said he is concerned by the number of temporary jobs, "as opposed to good, solid jobs" created in the U.S. economy.

Other jobs reports from earlier in the week were mixed.

On Thursday, the Labor Department said the number of people seeking unemployment benefits fell 11,000 last week to a seasonally adjusted 346,000. The four-week moving average was 352,500, an increase of 4,500 from the previous week's revised average of 348,000.

Private payroll provider ADP said on Wednesday that companies added 135,000 jobs in May, the second consecutive month of disappointing gains after averages of 200,000 jobs a month from November through February.