Labor Department: May unemployment rate rises to 7.6 percent

American employers added 175,000 jobs in May - a sign of steady hiring - the Labor Department reported Friday. And while the number is an improvement over April, it doesn't offer much incentive for the Federal Reserve to scale back its long-running stimulus policies.

The unemployment rate ticked higher to 7.6 percent. Economists had predicted the rate would remain unchanged at 7.5 percent. The increase likely happened because more people began looking for work, a good sign. About three-quarters found jobs, while the rest added to the ranks of the unemployed.

The government said the economy added 12,000 fewer jobs in April and March.

Employers have added an average of 155,000 jobs in past three months, below the average of 237,000 created from November through February.

The modest gains might mean the Federal Reserve will maintain the pace of its bond purchases. The Fed has said it will maintain its pace of bond purchases until the job market improves substantially. The purchases have helped drive down interest rates and boost stock prices.

Stock markets have gyrated in the past two weeks on heightened speculation that the Fed could slow its purchases later this year.

Job growth has been steady this year, despite higher taxes and federal spending cuts. Still, there were signs in the report 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 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 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.

Cuts in defense spending might have slowed factory output in some areas, according to a Fed report released this week. Factory activity shrank in May for the first time since November, and manufacturers barely added jobs, according to a survey by the Institute for Supply Management.

A separate ISM survey found that service companies grew at a faster pace last month but added few jobs. Service firms have been the main source of job growth in recent months.

Some positive signs of the economy's resilience have emerged. Service companies reported an increase in new orders, the ISM found. That suggests that businesses could expand further in coming months.

And steady gains in home sales and construction are providing support for the economy even as manufacturing weakens.

The Associated Press contributed to this report.