Labor force participation has been falling since peaking at 67.3 percent in 2000. That’s partly the result of baby boomers retiring and dropping out of the work force.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, thinks an improving job market will encourage more Americans to look for jobs. He predicts that the participation rate will level off at around 63.5 percent.
Some signs in the report suggested that the spending cuts and weaker global growth are weighing on the job market. Manufacturers cut 8,000 jobs, and the federal government shed 14,000. Both were the third straight month of cuts for those industries.
The number of temporary jobs rose about 26,000, the second straight month of strong gains. That suggests that employers are responding to more demand but aren’t confident enough to hire permanent workers. Many temporary employees work in manufacturing, which cut permanent jobs.
But industries that rely directly on consumer spending hired at a healthy pace — a sign of confidence that consumers will keep spending. Retailers added 28,000 jobs. Restaurants and hotels added 33,000.
Average hourly wages ticked up just a penny in May, to $23.89. That was because much of the job growth was in lower-paying industries.
But mild inflation is boosting American’s purchasing power. Over the past 12 months, hourly wages have risen 2 percent. Inflation has increased just 1.1 percent in that time.
The economy grew at a solid annual rate of 2.4 percent in the first three months of the year. Consumer spending rose at the fastest pace in more than two years. But economists worry that the steep government spending cuts and higher Social Security taxes might be slowing growth in the April-June quarter to an annual rate of 2 percent or less.
Consumers appeared earlier this year to shrug off the tax increase. But in April, their income failed to grow, and they cut back on spending for the first time in nearly a year. A Social Security tax increase is costing a typical household that earns $50,000 about $1,000 this year. For a household with two high-earners, it’s costing up to $4,500.