US unemployment rate hits 16-year low in May

The US unemployment rate fell to a 16-year low in May but monthly job creation saw a sharp slowdown, the Labor Department reported Friday.

The economy added just 138,000 net new jobs for the month, well below analyst expectations, while the jobless rate decreased by a tenth of a point to 4.3 percent.

The weakness in May`s numbers also came with a downward revision to April, bringing average job creation for the last three months down to 121,000.

The Federal Reserve is widely expected to raise interest rates later this month but Friday`s numbers may muddy the waters given the mixed picture it presents.

Falling unemployment, as a result of the tight labor market, support the views of policymakers who say the economy has reached full employment, but weak job creation may support those who want to be cautious about removing the stimulus of low interest rates.

But the jobless rate has fallen 0.5 percentage points since the start of the year, and anecdotal reports in the Fed`s own surveys increasingly suggest employers are having difficulty finding qualified workers, which raise concerns that wages will begin to rise, possibly stoking inflation.

Layoffs also are at 40-year lows, and analysts say companies fear they may not be able to replace workers they let go.

The closely watched labor force participation rate fell 0.2 points to 62.7 percent although this measure has shown no clear trend over the last 12 months, according to the report.