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Updated from 9:07 a.m. EDT

Growth in the U.S. labor market took a hit last month, as the economy added a relatively paltry 75,000 new jobs. The anemic expansion initially sparked buying in stock and bond markets, where traders have spent weeks worrying that a runaway economy would cause the

Federal Reserve

to raise interest rates further.

Stock gains flattened out or reversed as the day progressed.

May's nonfarm payroll addition was the smallest in seven months. It was also roughly 100,000 shy of economists' forecasts and down 40% from the rate of April. Meanwhile, the unemployment rate fell to 4.6% from 4.7%, while wage growth was weak at 0.1%, down from a revised 0.6% the month before.

Economists had expected 170,000 new jobs, an unemployment rate of 4.7% and average hourly income growth of 0.3%. Payroll growth in March and April was revised down by a combined 37,000 jobs.

In several respects, Friday's report is ideal for stock investors, showing restrained economic growth and contained wage inflation. On the other hand, the decline in the unemployment rate could bother traders and economists who worry that the Fed's main focus has become capacity utilization.

Recently, the

Dow Jones Industrial Average

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was down 21 points to 11,239, while the

S&P 500

rose fractionally to 1286. The yield on the 10-year Treasury fell to 5.05% from 5.10%.

The small rise in average hourly earnings is consistent with the Labor Department's productivity data from Thursday. In that report, the growth in first-quarter worker output was revised upward to 3.7% from 3.2%, while growth in unit labor costs was revised lower to an annualized 1.6% from 2.5%.

The significance of any information pertaining to cost pressures in the economy is heightened because of the Fed's "data-dependent" stance on its interest rate policy. The Federal Open Market Committee has raised its benchmark fed funds rate 16 straight times and said another boost could be needed when it meets later this month.

Minutes of the Fed's May 10 meeting showed that some members continue to be concerned about price pressures in the broader economy.

"Core inflation recently had been a bit higher than had been expected, and several members remarked that core inflation was now around the upper end of what they viewed as an acceptable range," the minutes, released Wednesday, showed. "Moreover, a number of factors were augmenting the upside risks to inflation: the surge in energy and commodity prices, some recent weakness in the foreign exchange value of the dollar, and the possibility that the apparent increase in inflation expectations could, if it persisted, impart momentum to inflation."

May's employment gains came primarily in services-producing industries, where 85,000 jobs were added. Construction industries added just 1,000 jobs, while manufacturers cut a net 14,000 positions.

To view David Peltier's video take on today's jobs report, click here