The U.S. economy added 175,000 new jobs in May, beating economists’ expectations. But the hiring rate remains well below the robust rate witnessed between November and February. The US. Labor Department said in its latest report Friday that the labor market maintained its momentum in May despite the tax increase and federal spending cuts.

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The report showed that employers added 155,000 new jobs a month from March to May, much lower than the November to February average of 237,000 new jobs. Economists polled by the Dow Jones Newswires expected the payrolls to rise by 169,000. The official employment report showed that the private sector employers added 179,000 jobs. Of that, 57,000 were in business services and professional category.

Retailers hired 27,700 new employees, construction firms took on 7,000 workers, while temporary-held agencies hired 25,600 workers in May. Education, leisure, health services, and hospitality businesses also added more jobs. However, manufacturers cut jobs for the third consecutive month in May, cutting 8,000 jobs after already having laid off 9,000 workers in April. Municipal governments hired 13,000 new workers, but federal employment fell by 14,000.

Implications of Modest Jobs Growth

Modest job market improvement means that the Federal Reserve may maintain the pace of its stimulus program. The Fed has earlier stated that it will continue with bond purchases until the job market improves. The stimulus program has been a boon for the financial markets, driving down interest rates and pushing stock prices. That’s the reason investors have been worried that the Fed may wind down the bond purchases if the economy continues to improve.

The U.S. GDP grew at the annual pace of 2.4 percent in the first quarter. Consumer spending increased at the fastest rate since 2011. But analysts are concerned that federal spending cuts and higher taxes may slow down the growth during April-June quarter. A report released earlier this week showed that defense spending cuts have slowed factory output in many regions.

The S&P 500 Index rose 0.58 percent to 1,631.57. Though the number of jobs added have improved, hourly wages aren’t picking up. Hourly earnings  were little changed from $23.88 in April to $23.89 in May.

Unemployment Rates

Though non-farm payrolls rose in May, unemployment rate rose to 7.6 percent as more Americans joined the labor force. The Labor Department said the increase in the unemployment rate showed more people have started looking for jobs, a good sign for the economy. About 11.8 million people remained unemployed last month. The U.S. labor force increased by 420,000 in May.