Labor market saw modest lift in May

The labor market continued last month to rebound from a severe winter slump.

Employers added 217,000 nonfarm jobs in May, the U.S. Labor Department said Friday. That was in line with forecasts of 215,000 jobs, although it fell short of the sharp rise in payroll gains the previous month, when payrolls grew by a revised 282,000. The nation's unemployment rate held steady at 6.3 percent.

The labor market, which has added an average of 197,000 jobs over the past 12 months, has not achieved the kind of lift-off in 2014 seen after previous recessions.

But job growth has improved steadily this year after getting a slow start due to the harsh winter weather that afflicted much of the U.S. The economy is also adding jobs across a range of sectors, with construction, health care, manufacturing, transportation, and leisure and hospitality companies all boosting their payrolls last month.

In another positive sign, the percentage of workers who voluntarily quit their jobs in May is at its highest level since October of 2008. That suggests people feel more confident they can find another job.

The May job numbers are "another illustration that the economy is back on the right track after the weather-related weakness during the winter," said Paul Ashworth, chief U.S. economist with Capital Economics, in a client note.

Most economists expect economic growth to surge in the second quarter after dipping into negative territory in the first three months of the year.

Part of that rebound is simply the economy catching up from its cold snap in the first quarter. But other signs also point to a brightening outlook. Interest rates remain low, bank lending is picking up and the stock market continues to deliver solid returns. The number of Americans applying for jobless benefits is also drifting down as employers lay off fewer workers.

Personal income, which includes people's wages, investments and other earnings, also has risen for four straight months. That is expected to drive consumer spending, a key engine for economic growth.

With income trending up, consumer confidence is also on the rise. That is perhaps most visible in automakers' unusually strong sales. Car manufacturers sold a total of 16.8 million vehicles in May, the biggest monthly gain since January of 2006.

"Consumer spending is going to be a big positive" this quarter, said Gus Faucher, a senior economist with PNC Financial Services Group. "The fundamentals also point to a gain in business investment, so we should see a bounce-back in the second quarter that will continue in the second half of the year."

A Federal Reserve survey on Wednesday showed a number of sectors gaining ground over the last two months, including retail sales, construction and manufacturing. The latest job figures keep the central bank on track to unwind its monthly bond purchase program. The Fed implemented the policy, known as "quantitative easing," in late 2008 to shore up economic growth by keeping lending rates low.

Small businesses could deliver another boost to job growth this year, Faucher said. "Small businesses have been scared away from what they've been through, but five years into the recovery they're regaining some of their confidence. Small businesses will contribute to job growth in 2014 and 2015."

According to Labor Department data, just over half of the jobs created since the labor market started picking up in 2010 have been generated by firms with fewer than 250 workers.

PNC forecasts annualized economic growth to top 3 percent in the second quarter, although Faucher said the economy could see slightly more moderate growth later in the year.

Yet while the economy is on the mend, many Americans continue to feel the pain of what has been the slowest economic recovery in U.S history. Nearly 10 million people remain unemployed. The labor participation rate -- a measure of the percentage of working-age adults who have a job or are looking for one -- is stuck at its lowest level since 1978, at 62.8 percent. In addition, many workers seeking full-time employment have only been able to find part-time jobs.

Wage growth also remains subdued, with hourly earnings rising 5 cents in May to $24.38, the Labor Department said. Hourly pay has risen a modest 2.1 percent over the past 12 months, while earnings growth for workers has trailed the robust profit gains that companies have enjoyed in recent years after moving to slash costs during the Great Recession.

A recent study by the financial firm Allianz found that roughly half of all American families who define themselves as middle class say they are just making ends meet, while many households are living paycheck to paycheck.