Weak U.S. employment report raises red flag on economy

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Payrolls increased by just 75,000 in May, which could put pressure on the Fed to cut interest rates this year

WASHINGTON - U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

Nonfarm payrolls increased by 75,000 jobs last month, the government said. It was the second time this year that job gains dropped below 100,000. Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000. U.S. House of Representative Speaker Nancy Pelosi, a Democrat, said the employment report was “a disturbing sign that the administration’s disastrous special interest agenda is hollowing out our economy.”Following the report financial markets priced in a rate cut as early as July and two more later this year. Economists, however, believe the Fed will probably wait for more signs of labor market weakness and clarity on the trade issues before easing monetary policy.

Some of the weakness in hiring could be because of worker shortages, especially in the construction, transportation and manufacturing sectors. But the worker shortage argument is somewhat undercut by moderate wage growth.

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