Payrolls in U.S. Rose 175,000 in May, Unemployment 7.6%

American employers took on more workers than forecast in May as the world’s largest economy weathered the impact of higher taxes and federal spending cuts.

Payrolls rose 175,000 after a revised 149,000 increase in April that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey called for a gain of 163,000. The unemployment rate climbed to 7.6 percent from 7.5 percent as a surge in the number of people entering the labor force swamped the number of positions available.

Broad-based gains at private employers, ranging from retailers and builders to health-care providers and hotels, indicate companies are optimistic about the outlook for demand, even as government payrolls shrink. Stocks rallied on optimism economic growth will pick up later this year after a second-quarter slowdown.

“The economy has really held up much better than expected, considering the strong fiscal headwinds that we’re experiencing right now,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, who correctly projected the rise in the unemployment rate. “The underlying fundamentals of the economy are very supportive, and once these headwinds recede somewhat, that the economy can gain momentum.”

The Standard & Poor’s 500 Index climbed 1.3 percent to 1,643.38 at the close in New York. The gauge rallied 2.1 percent in the past two days, the best performance since January. The yield on the 10-year Treasury note rose to 2.17 percent from 2.08 percent late yesterday.

Craft Brewer

Among companies hiring workers is Santa Fe Brewing Co., a 30-employee craft beer maker in Santa Fe, New Mexico. The company has hired five full-time workers and one part-time employee this year to help support growing sales in the Southwest. It’s looking to hire three or four part-time employees now, and may add more full-time positions next year, said owner Brian Lock.

“I get the sense the economy is coming back a little bit,” said Lock, 41. “We are definitely on the recovery track. We are seeing more tourists than we have in the past three of four years, and that is a good sign.”

While Americans are finding work, wage gains aren’t picking up. Average hourly earnings were little changed at $23.89 in May after $23.88 in the prior month. They were up 2 percent in 12 months ended in May, the same as in April.

Household Survey

The household survey, used to calculate the unemployment rate, showed a 420,000 increase in the size of the labor force, exceeding the 319,000 gain in employment and pushing up the jobless rate from a four-year low.

The report also showed sequestration, or the automatic across-the-board federal spending cuts that began in March, may be having an impact on government payrolls. Employment at federal agencies excluding the postal service showed a 9,400 decrease last month. Private payrolls, by contrast, increased 178,000 in May after a 157,000 gain the prior month.

Alan Krueger, chairman of the White House Council of Economic Advisors, used the report to repeat his call to Congress to replace across-the-board budget cuts with what the Obama administration calls “balanced deficit reduction.”

“We’re seeing losses of government jobs,” Krueger said in an interview on Bloomberg Television. “We’re making progress, but we would do even better if Congress would get out of the way.”

Manufacturing saw employment decline for a third month, falling 8,000 in May after a 9,000 decrease in the previous month, as slowing global growth curbed orders.

Service Providers

Employment at private service providers climbed 179,000 last month, and temporary-help agencies added 25,600 jobs. Retailers took on 27,700 employees, the most in six months.

Construction companies added 7,000 workers, reflecting the housing recovery that’s helping to power economic growth and offsetting some of the recent weakness in manufacturing.

Among the beneficiaries is Fluor Corp., an engineering and equipment company based Irving, Texas. The company expects its global staff to grow from 13,500 to 15,000 by the end of the year, said Peter Oosterveer, president of energy and chemicals.

Wage growth remains “modest,” with pay up between 3 percent and 5 percent in North America and Europe, Oosterveer said at a conference yesterday.

Jane Hillerby, 56, was living in Reno, Nevada, and commuting to San Francisco when she lost her job as a manufacturing consultant in January. With degrees in engineering and business, she was confident she could find work closer to home.

‘Tough’ Market

“I thought I had a pretty good resume but I wasn’t getting anything,” Hillerby said. “It’s tough out there.”

In March she took a job with Ebara Corp., an industrial pump manufacturer with a site in Reno. Her $90,000-a-year salary as a project manager is less than the $130,000 she earned as a consultant, though she doesn’t have to commute to California and the company covers her health insurance.

Today’s jobs report may not satisfy Federal Reserve policy makers led by Chairman Ben S. Bernanke, who are looking for greater progress in reducing unemployment. The Fed has said it will continue its $85 billion-a-month pace of asset purchases until the labor outlook improves “substantially.”

Bill Gross, manager of the world’s biggest bond fund, said the Fed is unlikely to reduce its asset purchases after the increase in the unemployment rate.

Work Week

“I don’t think today’s report says anything about tapering at all with unemployment going higher and metrics in terms of the work week and wages being very dour,” Gross, founder of Pacific Investment Management Co., said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. Bernanke “won’t taper. But I think ultimately in order to get a more normal economy, the Fed has got to move interest rates up to more normal levels.”

Former Fed economist Vincent Reinhart, who is now chief U.S. economist at Morgan Stanley in New York, says policy makers need to see about four months of job growth averaging at least 200,000 to justify reducing the pace of asset purchases.

Today’s report showed the number of discouraged workers fell to 780,000 in May, the fewest since September 2009, according to Labor Department data that aren’t adjusted for seasonal variations.

For Daniel McCune, the road to employment has been difficult. The 26-year-old has struggled to find work since earning his college degree in 2009.

“It was probably the worst possible time to graduate,” McCune said. “It’s a tough situation to be in, from 2009 to just about now.”

‘Dream Job’

After graduating from Liberty University in Lynchburg, Virginia, McCune held a Capitol Hill internship and looked for his “dream job” at a U.S. intelligence agency. When it didn’t materialize, he moved in with his parents and took a job at Macy’s. Employers are looking for experience, he said, and he’s had trouble landing interviews.

Gross domestic product rose at an annualized rate of 2.4 percent from January through March. Growth will slow to a 1.6 percent pace in the second quarter as the effects of sequestration take hold, before improving to an average 2.4 percent rate in the second half of the year, according to the median forecast of economists surveyed by Bloomberg from May 3 to May 8.

Some companies, including industrial giant Caterpillar Inc. to insurer Genworth Financial Inc., are adjusting payrolls to cut costs. Genworth, based in Richmond, Virginia, will eliminate 400 jobs as low interest rates squeeze investment income.

Caterpillar Sales

Caterpillar, the largest maker of construction and mining equipment, has responded to weaker global sales by delaying capital investments and requiring some employees to take unpaid leave, said Michael DeWalt, director of investor relations for the Peoria, Illinois-based company.

“Within corporate accounting, treasury, tax, about 90 percent of the people are taking three weeks of unpaid leave this year,” DeWalt said at a June 5 conference. “A lot of the actions that we’re taking are all around trying to match the cost base up with what the reality is of sales.”

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