Unemployment rate holds steady as U.S. regains lost jobs

U.S. employers added 217,000 jobs in May, a substantial gain for a fourth straight month, fueling hopes that the economy will accelerate after a grim start to the year.

Monthly job growth has now averaged 234,000 for the past three months, up sharply from 150,000 in the previous three. The unemployment rate, which is calculated from a separate survey, remained 6.3 percent in May. That is the lowest rate in more than five years.

The report Friday from the Labor Department signaled that the U.S. economy is steadily strengthening and outpacing struggling countries in Europe and Asia. U.S. consumers are showing more confidence. Auto sales have surged. Manufacturers are expanding steadily. Service companies are growing more quickly.

"I don't think we have a boom, but we have a good economy growing at about 3 percent," said John Silvia, chief economist at Wells Fargo. "We're pulling away from the rest of the world."

Investors seemed pleased. The Dow Jones industrial average rose 60 points in morning trading.

The job market has now reached a significant milestone: Nearly five years after the Great Recession ended, the economy has finally regained all the jobs lost in the downturn.

More job growth is needed, though, because the U.S. population has grown nearly 7 percent since then. Economists at the liberal Economic Policy Institute have estimated that 7 million more jobs would have been needed to keep up with population growth.

In addition, pay growth remains below levels typical of a healthy economy. Average wages have grown roughly 2 percent a year since the recession ended, well below the long-run average annual growth rate of about 3.5 percent.

In May, average hourly pay rose 5 cents to $24.38. That's up 2.1 percent from 12 months ago and barely ahead of inflation, which was 2 percent over the same period.

Weak wage growth has limited Americans' ability to spend. That, in turn, has slowed the economy, because consumer spending drives about 70 percent of economic activity.

Consumer spending has risen at just a 2.2-percent annual rate since 2010, more than a percentage point below the average yearly increase in the two decades before the Great Recession.

"The sluggishness in wages is the weak link that is preventing the U.S. economy from fully expanding its wings," said Gregory Daco, U.S. economist at Oxford Economics.

One reason for the lack of solid pay raises: Many of the jobs added since the recession ended in June 2009 have been in lower-paying industries. A similar pattern was evident in May: Hotels, restaurants and entertainment companies added 39,000 jobs. Retailers gained 12,500. Manufacturers added 10,000 jobs, construction firms 6,000.

Still, the United States has now added more than 200,000 jobs a month for four straight months—the first time that's happened since 1999.

"There's no doubt the rate of job creation has accelerated," said Dan Greenhaus, chief global strategist at BTIG LLC. "But there remains a fair bit of slack in the labor market."

Many economists had predicted late last year that growth would finally accelerate in 2014 from the steady but modest pace that has persisted for the past four years. But the economy actually shrank in the first three months of this year as a blast of cold weather shut down factories and kept consumers away from shopping malls and car dealerships.

The U.S. economy contracted at a 1-percent annual rate in the first quarter, its first decline in three years.

Employers have shrugged off the winter slowdown and have continued to hire. That should help the economy rebound because more jobs mean more paychecks to spend.

Most economists expect annualized growth to reach 3 percent to 3.5 percent in the current second quarter and to top 3 percent for the rest of the year.

Recent economic figures suggest that growth is accelerating.

Auto sales, for example, jumped 11 percent in May to a nine-year high. Some of that increase reflected a pent-up demand after heavy snow during the winter discouraged car buyers. But analysts predict that healthy sales will continue in coming months, bolstered by low auto-loan rates and the rollout of new car models.