The U.S. economy roared into overdrive last month, the Labor Department reported Friday, extending the longest streak of job growth on record and echoing other recent signs of strength.
The unemployment rate fell to 3.8 percent, its lowest level since the heady days of the dot-com boom in early 2000. The net increase of 223,000 jobs reflected healthy gains in a broad range of industries, from manufacturing and transportation to health care and retailing.
The monthly numbers are traditionally kept under wraps by the Labor Department until their release, under rules meant to keep officials from influencing markets by discussing them publicly beforehand or immediately afterward. But in an unusual departure from protocol, President Donald Trump hinted on Twitter more than an hour before the announcement that positive data were in store. "Looking forward to seeing the employment numbers at 8:30 this morning," he tweeted.
Still, the overall report painted a picture of a robust labor market by any measure. Unemployment among blacks fell to 5.9 percent from 6.6 percent in April, the lowest since the Labor Department began breaking out unemployment by race in 1972. Among college graduates, the unemployment rate is 2 percent, while it stands at 3.9 percent for workers with a high school diploma.
It was the 92nd-consecutive month of job creation. Most economists expect the momentum to continue, but a deeper drop in the unemployment rate or a big increase in average hourly earnings would stoke fears of inflation and, in turn, a more hawkish Federal Reserve.
Fed policymakers are almost certain to raise interest rates when they meet this month, with at least one additional increase likely in the second half of 2018.
In May, average hourly earnings rose slightly, lifting the year-on-year gain to 2.7 percent. That's healthy enough to assuage fears that wages are stagnating but not so strong as to change the Fed's expected course.
"It was a stronger report than expected, but it wasn't so hot as to lead the Fed to believe it's behind the curve," said Michael Gapen, chief U.S. economist at Barclays, adding that the Fed's plans shouldn't worry stock-market bulls. "It will keep the Fed on its gradual normalization path."
Indeed, the stock market rallied in the wake of the news. The Standard & Poor's 500 stock index finished the day up more than 1 percent. Bond prices dipped slightly as traders braced for the possibility of faster economic growth, lifting the yield on benchmark 10-year Treasury bonds to 2.9 percent.
Gapen believes the unemployment rate could sink as low as 3 percent by the end of 2019. That would bring it to levels last seen in 1953, the height of the economic boom after World War II.
The only negative in the report was a slight drop in the share of Americans who are either working or looking for a job, paced by a 170,000 increase in the number of people not in the labor force. That, in turn, put downward pressure on the unemployment rate, which sank from 3.9 percent in April.
"It was certainly a good number, with some weather-related bounce-back in construction," said Diane Swonk, an economist with Grant Thornton. While the unemployment rate may have moved in the right direction last month, she added, "it went down for the wrong reason, a reduction in the size of the labor force."
Swonk said the great conundrum in the current economic environment was why wage growth had been so modest. Everything from slow productivity growth to the decline of unions and digital disruption has been cited as a reason.
"This is the last shoe to drop in the labor market," said Torsten Slok, chief international economist at Deutsche Bank. "It's just a matter of time before wages start going up more strongly, but there's frustration that it hasn't happened yet, even though unemployment is the lowest it has been in almost 18 years."
Besides the other potential causes, Slok has one of his own: While job switchers are being rewarded with raises, people who stay in their jobs are not. Nearly 15 percent of what he calls "job stayers" saw no increase in wages in the past 12 months. At comparable periods in past economic cycles, that share was more like 10 percent.
"If you just stay around, you have less bargaining power," Slok said.
Sectors like construction, energy, transportation and hospitals have been especially tight, Swonk said, with some employers offering signing bonuses to lure workers. For evidence of the trend, she is watching teenage unemployment, which was 12.8 percent last month. In April, it stood at 12.9 percent, down from 14.7 percent in April 2017.
The teenage unemployment rate is significant because this cohort is a prime beneficiary of tight labor markets, Swonk explained. When there was more slack in the system, teenagers had to compete with 50-somethings for scarce jobs. Now, as the latter group finds higher-paying positions, young workers are filling the gap.
For now, the strong labor market will keep powering economic growth, and the data reinforced expectations for Fed policymakers to raise interest rates when they meet June 12-13. It also spurred increased bets on two more increases this year after that, rather than one, though trade disputes and weakness in some European economies pose risks to U.S. growth.
While lauding the employment figures, economists also wondered how far the strength in monthly payrolls gains can extend.
"The only question we have is: where is the U.S. finding so many workers?" Sal Guatieri, senior economist at BMO Capital Markets, wrote in a note, adding that his team is "much more comfortable with our view that the Fed will move each quarter until mid-2019, barring a further escalation in the trade war."
White House National Economic Council Director Larry Kudlow said Friday morning on CNBC that he briefed Trump on the details of the report Thursday evening, calling him on Air Force One. That means Trump had detailed knowledge of the specifics of the jobs report, knowing that it would be strong and better than expected.
Treasury yields moved sharply higher within seconds of Trump's tweet. He had never issued such a tweet before. Bloomberg News data also showed that the value of the U.S. dollar moved sharply higher after the Twitter post compared with previous trades the mornings jobs data are released. That means traders were probably making investment decisions based on signals they took from Trump's post.
Tony Fratto, a Treasury Department official who worked in George W. Bush's administration, said that while not illegal, Trump's tease could be deemed inappropriate because "you want market participants to get their data from their government in predictable, official ways, not haphazard ones."
"If not, you end up with some people getting information ahead of other people," Fratto continued. "People who happened to be on Twitter at 7:21, you learned that the president was likely happy with the jobs report. If you weren't on Twitter, you didn't and that's problematic for markets."
The jobs data come out once a month and often can lead to huge buying or selling trends on Wall Street, depending on how the information is received. It is extremely closely held and kept under tight control until it is released at 8:30 a.m. on the first Friday of each month. A select number of administration officials receive the data the day before, but officials are prohibited from tipping their hand about what the numbers reveal.
"He chose to tweet," Kudlow said. "You can read into that 10 different things if you want to read into it."
Information for this article was contributed by Nelson D. Schwartz of The New York Times; by Damian Paletta of Bloomberg News; by Shobhana Chandra of The Washington Post; and by Christopher Rugaber of The Associated Press.
A Section on 06/02/2018