U.S. job growth surges, wages push higher in May

Wages poised to rise as states raise minimum wage, large corporations increase pay

WASHINGTON (Reuters) — U.S. job growth accelerated sharply in May and wages picked up, signs of momentum in the economy that could put a September interest rate hike from the Federal Reserve back on the table.

Nonfarm payrolls increased 280,000 last month, the largest gain since December, the Labor Department said on Friday.

While the unemployment rate rose to 5.5 percent from a near seven-year low of 5.4 percent in April that was because more people, likely new college graduates, entered the labor force, indicating confidence in the jobs market.

Payrolls for March and April were revised to show 32,000 more jobs created than previously reported. That together with an eight cent gain in average hourly earnings suggest a September rate hike is now a possibility.

The Fed has kept overnight rates near zero since December 2008. Officials from the U.S. central bank will meet on June 16-17, but the economy's sluggishness has left financial markets doubting whether the Fed will be able to raise rates this year.

U.S. gross domestic product contracted at a 0.7 per cent annual pace in the first quarter, although the drop probably exaggerated the economy's weakness given a mix of temporary factors at play.

Even so, growth is off to a slow start in the second quarter, in part because of the lingering effects of a strong dollar and spending cuts in the energy sector.

Economists polled by Reuters had forecast payrolls rising 225,000 last month and the unemployment rate steady at 5.4 per cent. May payroll gains lifted job growth above last year's average of 260,000 jobs per month.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased 0.1 percentage point to 62.9 per cent last month.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment was unchanged at 10.8 percent.

The increase in average hourly earnings took the year-on-year gain to 2.3 per cent, the largest rise since August 2013.

Wages are poised to push higher against the backdrop of firming demand for entry-level workers and a better composition of jobs that are being created. In addition, many states have raised the minimum wage and some large corporations have been increasing pay for workers.

Walmart, the largest private employer in the United States, this week announced it would raise minimum wages for more than 100,000 U.S. workers, its second wage hike this year.

Payroll gains last month were broad-based, though the mining sector purged more jobs as it works through the thousands of cuts announced by oil-field companies.

Manufacturing employment increased 7,000 after adding 1,000 jobs in April. Mining payrolls fell 18,000, logging the fifth straight month of declines.

Schlumberger has announced about 20,000 layoffs this year. Baker Hughes and Halliburton are also cutting thousands of jobs.

Construction employment increased 17,000, reflecting a strengthening housing market. The average workweek was steady at 34.5 hours.

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