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Job growth shows economy expanding at leisurely pace

Construction laborers work on the construction of the Broad Museum in downtown Los Angeles on May 30, 2013.
Construction laborers work on the construction of the Broad Museum in downtown Los Angeles on May 30, 2013.FREDERIC J. BROWN / AFP - Getty Images

If the jobs data for May are any indication, the economy isn't falling into the feared "spring swoon." It isn't dancing in the aisles, either, though.

And while Uncle Sam’s penny-pinching may be putting a damper on hiring, a steady improvement in consumers’ finances is helping to keep the economic recovery on track.

Employers stepped up hiring in May, a sign the economy continues the gradual recovery that’s been in place for the past three years. Though slower than the rebounds typically seen after past recessions, the pace of hiring has averaged about 180,000 new jobs a month.

Friday’s employment report from the Labor Department – pegging job growth last month at 175,000 - showed that pace virtually unchanged.

"At least for now, it's more of the same - a slow steady recovery,” said Rick Meckler, president of Libertyview Capital Management.

The gradual improvement in the job market has prompted more unemployed workers to look for a job. Some 420,000 people entered or returned to the work force in May, many of them recent high school and college graduates. With more new job applicants than open positions, the unemployment rate ticked up a tenth of a percentage point to 7.6 percent.

As in recent months, much of the hiring in May came from professional and business services companies, which added 57,000 jobs. Over the past year, the sector has added 589,000 new jobs.

Hiring also remained strong in the leisure and hospitality, retail and health care industries.

The federal government, on the other hand, continues to shrink its work force. The federal payroll was trimmed by 14,000 jobs in May due to cuts in federal spending known as the sequester, which took effect beginning in March. Over the past 3 months, the federal government has eliminated 45,000 jobs.

Those job cuts are expected to deepen through the summer before easing toward the end of the year.

As federal spending has tightened, consumers spending has expanded, rising by 3.4 percent in the first quarter.

“Job gains are driving consumer confidence higher and supporting gains in consumer spending, despite the drag on disposable incomes from higher taxes that took effect at the beginning of 2013,” PNC Financial economists wrote in a note to clients.

Households also continue to build up savings and pare down debt. Household net worth rose by $3 trillion to a record $70.3 trillion in the first quarter, thanks to rising house and stock prices and a drop in household debt, according to a report this week from the Federal Reserve

Much of the improvement in household wealth is the result of ultra-low interest rates engineered by the Fed following the financial collapse of 2008. Lower rates have helped ease consumers' debt burden; cheap mortgages have spurred home buying and helped drive up prices; and low rates on bonds have prompted investors to move cash into stocks, pushing prices higher.

But as the economy continues to heal, central bankers have hinted they are considering slowing the pace of the huge purchases of mortgage and government bonds that has held rates low. Since 2008, the central bank has taken on more than $3 trillion in debt, oversized holdings it will eventually have to begin whittling down.

The recent stock market selloff has been sparked by the current debate among Fed officials over when to begin “tapering” off the current $85 billion monthly purchases of more debt.

Investors fear that if interest rates begin rising again, the economic recovery could stall. But the longer the central bank waits to change course, the more debt it will eventually have to sell off.

"The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve -- that everybody agrees is excessive -- the better," former Fed chairman Alan Greenspan told CNBC Friday. "There is a general presumption that we can wait indefinitely and make judgments on when we're going to move. I'm not sure the market will allow us to do that.".