The Labor Department reported on Friday that nonfarm payrolls increased by a seasonally-adjusted 138,000 positions in May, well below the consensus 182,000 estimate. This followed gains of 174,000 in April, originally reported as 211,000 and 50,000 in March, originally reported as 79,000. Monthly revisions result from additional reports received from businesses since the last published estimates and from the recalculation of seasonal factors. Over the past 5 months, job gains have averaged 162,000 per month, less than the 187,000 monthly pace in the first 5 months of 2016. The economy has generated jobs every months since October 2010.

Employment in health care rose by 24,000 in May, on par with the average monthly gain since the beginning of 2017, but below the average monthly gain of 32,000 in 2016.

The unemployment rate fell 10 basis points to 4.3% in May, a 16-year low. The number of unemployed persons fell to 6.9 million. Since January, the number of unemployed has fallen by 774,000. The unemployment rate is derived from a separate survey than the payroll employment number cited above. The Labor Department has two surveys, one of businesses and one of households. The unemployment data is based on the household survey, while the hiring employment data is based on the business survey. A broader measure of unemployment, which includes those who are working part-time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell 20 basis points to 8.4% in May. This was a 10-year low.

Further evidence of tightening labor market conditions was reported earlier in the week in the Federal Reserve’s beige book, a report based on anecdotal information collected across the central bank’s 12 districts. In the report, the Fed said that “most districts (were) citing shortages across a broadening range of occupations and regions.” Separately, the Wall Street Journal reported this week that the state of Maine was “pursuing an unconventional strategy to help ease the state’s labor shortage (by) releasing nonviolent offenders from prison early to get them back to work”.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work fell to 62.7% from 62.9% in April. It is very low by historic standards and in part reflects the effects of retiring baby boomers.

Average hourly earnings for all employees on private nonfarm payrolls increased by four cents to $26.22 in May. Over the year, average hourly earnings have risen by 2.5%. This is down slightly the 2.6% average in 2016. In 2015 this figure was 2.3% and in 2014, it was 2.1%. Increases in minimum wage rates in many states and tightening labor markets may start to put further pressure on this measure of earnings.

Additional downward pressure on the unemployment rate is likely to occur in the coming months as job growth exceeds labor force growth. This will put it further below the so called full-employment or natural equilibrium level; indeed, the official estimate by the Federal Reserve of the full-employment level of unemployment is 4.7%. A rate much below this rate is believed to fuel inflation through upward pressure on wage rates. The drop in the May jobless rate to 4.3%, as well as other evidence of labor shortages will provide further reasons for the Federal Reserve to pursue a rate hike at its next meeting on June 13th and 14th.