Employers in the United States stepped up hiring in May in a sign that the economy is growing modestly but not enough to convince the Federal Reserve to scale back the amount of cash it is pumping into the banking system.

The US added 175,000 jobs last month, just above the median forecast in a Reuters poll, Labor Department data showed yesterday. The unemployment rate ticked a tenth of a percentage point higher to 7.6 per cent, with the rise actually giving a relatively hopeful sign as it was driven by more workers entering the labour force.

After a winter when the US economy seemed to be turning a corner, May was the third straight month that payrolls outside the farm sector increased by less than 200,000. That could heighten concerns that austerity is sapping vigour, and might dampen speculation the Fed could soon trim bond purchases aimed at lowering interest rates and boosting employment.

Officials at the US central bank have intimated they could be close to reducing bond purchases despite modest economic growth, which is not expected to pick up until late in the year when the sting from
spending cuts begins to fade.

"They're going to need a substantial run of data to change course," said Ian Shepherds on at Pantheon Macroeconomics. "To actually do it, the economy not only has to be improved but it has to be improved in such a way that it can take the strain of the new policy... I don't think it is just yet."

Budget cuts have led to hiring freezes at many government agencies, and attrition could be slowly reducing payrolls. Government payrolls declined by 3,000 in May.

Fed officials next meet on June 18‐19 and are widely expected to keep purchasing US$85 billion in bonds a month. Many economists don't expect the job market to be strong enough for the Fed to begin scaling back its bond purchases before December.

Source: AmFraser