Correction to Jobs Story

The unemployment rate fell to the lowest level in 16 years even as the pace of hiring slowed in May. The data suggest employers are starting to add to payrolls more slowly in a tight labor market.

Nonfarm payrolls rose by a seasonally adjusted 138,000 in May from the prior month, the Labor Department said Friday, and job gains in the prior two months were revised down. The unemployment rate fell to 4.3% from the prior month's 4.4% reading. The rate was last this low in May 2001.

Economists surveyed by The Wall Street Journal had expected 184,000 new jobs to be added in May and a jobless rate of 4.4%.

The historically low unemployment rate comes with the caveat that the labor force shrank last month. The labor-force participation rate fell to 62.7% in May from 62.9% in April. The rate is near the lowest level in since the 1970s, a time when women were entering the labor force in larger numbers.

Many economists expected hiring to slow as the unemployment rate fell. Employers in a number of industries say they're having trouble filling positions. The low unemployment rate likely gives the Federal Reserve leeway to increase the central bank's benchmark interest rate later this month. But slowing hiring and softer inflation readings may give some officials pause.

Friday's report showed payroll gains were revised down a net 66,000 in April and March. Through May, employers added an average 162,000 jobs to payrolls each month, a slower pace than the 187,000 jobs added monthly, on average, in 2016.

The U.S. labor market has been one of the brightest spots in a long recovery marked by slow economic growth. Employers have added jobs every month since October 2010. Consistent hiring has come despite historically soft economic growth of near a 2% annual rate since the expansion began eight years ago this month.

Many economists see the labor market as reaching full employment, or the point when virtually all job seekers have found work, but wage inflation is still modest. Employers in a several of industries say it's harder to find workers compared to a few years ago, but many are still reluctant to ramp up wages at time when consumer spending and business investment have been uneven.

Average hourly earnings for private-sector workers increased by 4 cents to $26.22 an hour in May. From a year earlier, wages rose 2.5%. Annual wage gains have stayed near the 2.5% pace since late 2015, despite a steady decrease in the unemployment rate.

Last month, hiring was improved in the construction sector and was relatively strong in health care. Retailers and manufacturers shed jobs and leisure and hospitality, a category that includes restaurants, increase at a slower rate. Employment at all levels of government fell by 9,000 last month.

An alternative measure of unemployment and underemployment, which includes those who have stopped looking and those in part-time jobs who want full-time positions, was 8.4% in May, versus 8.6% the prior month. That rate has fallen even more sharply than the unemployment rate over the past year.

The rate, designated U-6, averaged 8.3% in the two years before the recession.

The Labor Department's employment report can be accessed at: http://www.bls.gov/news.release/empsit.htm

Write to Eric Morath at eric.morath@wsj.com and Josh Mitchell at josh.mitchell@wsj.com.

Corrections & Amplifications

This article was corrected at 08:51 a.m. because the original misstated the name of the Fed in the fifth paragraph. The low unemployment rate likely gives the Federal Reserve leeway to increase the central bank's benchmark interest rate later this month.

The low unemployment rate likely gives the Federal Reserve leeway to increase the central bank's benchmark interest rate later this month. "Unemployment Rate Falls to Lowest Level Since 2001, Job Creation Slows in May" at 8:45 a.m. misstated the name of the Fed in the fifth paragraph.

(END) Dow Jones Newswires

June 02, 2017 08:58 ET (12:58 GMT)