Jobs Data Give Fed Options

Ian Shepherdson, chief economist at High Frequency Economics, said he is now looking for a 25-basis-point increase at the end of this month but he remains "agnostic" on whether the Fed will raise rates by half a point in August "not least because surveys suggest job gains may accelerate." The Institute for Supply Management index suggests that 100,000 manufacturing jobs are coming, he said. In May, factory employment increased by 32,000.

Employment in service-providing industries added 176,000 in May, led by a 64,000 increase in professional and business services jobs. Construction gained 37,000 jobs and goods-producing industries added 72,000.

The average workweek was unchanged at a seasonally-adjusted 33.8 hours. The manufacturing workweek rose by 0.4 hour to 41.1 hours. Hours worked at factories were the highest since October 2000.

Now that payrolls are finally increasing, economists are no longer hailing the Labor Department's household survey as the best measure of employment growth. The household survey, which is believed to capture the growth in small businesses and is used to compile the unemployment rate, found that employment rose by 196,000 in May.

Gerald Purgay, senior vice president at human resource consultancy firm DBM, said he is "cautiously optimistic" about the employment outlook but noted there are still forces holding the job market back, notably very strong productivity, continued outsourcing and industry consolidation. "It's still a difficult job market where the median time to find a job is about five months," he said.

DBM continues to advise clients to be flexible in seeking employment, which means being willing to change industries or accept a lower compensation package.

Despite impressive job gains over the past three months, a recent poll by the Wall Street Journal and NBC showed that President Bush's approval rating has fallen to 47%, a new low for his tenure, amid continued worries over high oil prices and the situation in Iraq. Over the past 40 years, a sub-50% reading at this juncture has tended to result in a loss for the incumbent president at the November election.