WASHINGTON – U.S. employment likely surged again in May, analysts said Wednesday, cementing expectations the Federal Reserve (search) will raise interest rates this month and buoying President Bush's election hopes.
Economists believe more than 200,000 jobs were created last month, building on the 625,000 added in March and April, as employers geared up to meet robust demand after three long years of layoffs and tepid hiring.
While the roaring employment gains in March and April surprised most observers, who had been disappointed by the slow recovery from the 2001 recession, analysts have been quick to embrace the new rosier jobs outlook.
"I'm swinging for the fence this week," said ClearView Economics (search) president Ken Mayland, predicting 300,000 jobs were created last month. "There's just every indication that the labor market is improving very dramatically."
The Labor Department's (search) closely watched payrolls report, due Friday, is expected to show 216,000 new jobs in May, according to a Reuters survey of economists.
Analysts said another strong report will put the final nail in the coffin of rock-bottom interest rates.
Encouraged by strong economic growth and keen to head off inflation pressures, Fed policy-makers are expected to raise borrowing costs from a 1958-low of 1 percent when they next meet on June 29-30.
"At this point expectations for a June hike are well cemented and it is going to take a substantially weaker-than-expected payrolls number to shake that," said Avery Shenfeld, senior economist at CIBC World Markets.
Economists said while job growth below 125,000 could erode market confidence in the hiring rebound, some moderation of growth after March and April is expected. Forecasts in the Reuters survey of 24 analysts ranged from 140,000 to 300,000 new jobs.
Expectations for strong jobs growth in May were boosted on Tuesday after the Institute for Supply Management's measure of factory employment jumped to the highest level in 31 years, though a separate report by outplacement firm Challenger, Gray & Christmas (search) showed layoffs are still higher than they typically would be in a strong recovery.
Despite the predicted job gains in May, few analysts expect the unemployment rate to decline from April's 5.6 percent, since news of the improving labor market likely lured thousands of discouraged Americans back into the workforce to seek work.
Banc of America senior economist Peter Kretzmer said the jobless rate may even move up in the next few months.
"The labor force has fallen so much in the last 12 months that it is time now for that labor force to pick up as people are really gaining confidence," Kretzmer said. "So we may see the unemployment rate move in the opposite direction of the improved labor market for a while."
The boost in hiring has brightened the campaign trail for Republicans, but with 1.5 million jobs gone since Bush took office, 250,000 would need to be created every month until the November election to erase that deficit.
Kretzmer said that while such growth might have been possible before energy prices surged, the soaring cost of oil and gasoline will likely eat into consumer demand in the months ahead -- dampening some of the need for new hiring.
"The higher energy prices are sapping confidence to some degree," Kretzmer said.
"I think the effect is moderating consumer spending, which is only going to make businesses more cautious and it's going to moderate their pickup in employment as well," he said, predicting a still-healthy 200,000 job gain in May.
Average hourly earnings are forecast to have risen 0.2 percent in May after April's 0.3 percent gain, according to the Reuters survey, while the average workweek was projected to lengthen to 33.8 hours after being unchanged in April.