The U.S. added only 38,000 jobs in May, the fewest in almost six years, with the monthly employment snapshot likely to heighten worries about economic growth and compel the Federal Reserve to postpone an interest rate hike.
"Monthly jobs reports are complicated and messy, and this is a great example of that," said Art Hogan, chief market strategist at Wunderlich Securities. "There are three things that affected this disappointing number," added Hogan, who listed the Verizon strike, adverse weather conditions that delayed the start of construction projects and ongoing job reductions in the energy sector. "All that together shouldn't change the opinion that this is a disappointing number."
The smallest monthly addition since September 2010 comes after a revised lower tally of 123,000 in April, the Labor Department said Friday.
The unemployment rate dropped to 4.7 percent, the lowest since late 2007, as Americans departed the labor pool. Hourly earnings rose 0.2 percent.
"We've spoken many times about the problems of a lack of supply of labor and that supply shrunk even more," Peter Boockvar, chief market analyst at the Linsey Group, noted in emailed comments. "Without the warm bodies, there aren't as many people that can be hired, assuming the demand for them is still apparent."
Economists had estimated that employers would add 160,000 jobs, according to data provider FactSet.
The jobs report is likely to be a major factor when Fed policy makers meet later this month to decide whether to increase benchmark interest rates.
"The odds of a June hike are now about zero and the odds of a July hike is down to 34 percent versus 64 percent yesterday," Boockvar said. "Gold is up $20 and the U.S. dollar is getting hammered."
The government has estimated that the economy grew at just a 0.8 percent annual rate in the January-March quarter. More recent figures indicate that growth has since strengthened. But the Fed may want additional data to ensure that the improvement is sustained.