U.S. Added 175,000 Jobs In May; Unemployment Higher At 7.6%

A job seeker fills out a job application during the San Francisco Hirevent job fair at the Hotel Whitcomb in San Francisco, California.

U.S. employment rose more than expected last month, and more Americans entered the workforce, signals that the economy withstood the effects of higher taxes and federal budgets cuts.

Payrolls increased by 175,000 in May, more than the 163,000 that economists predicted, according to Labor Department data released this morning. May’s gain followed a revised 149,000 in April, a figure smaller than initially estimated.

More workers entering the labor force pushed up the unemployment rate to 7.6% from 7.5% a month a earlier. Wage gains, meanwhile, aren’t keeping pace. Average hourly earnings were $23.89 in May, just a penny more than in April.

Stocks climbed higher this morning on the new job data. The Dow Jones industrial average gained 0.5% to 15,115.49. The Nasdaq composite rose 0.4% to 3,436.16, and the S&P 500 rallied 0.5% to 1,630.56.

Investors seem to believe the employment figures will do little to stop the Federal Reserve’s $85 billion-a-month in bond buying that has boosted the stock market to record highs. “The long and short of the May employment report is that it should put to rest any notion the economy is going into a swoon as it did last year–and with that tapering talk stays on the table,” says Steve Blitz, ITG Investment Research’s chief economist. “From a policy perspective, the Fed may indeed keep up the taper talk not because the economy is booming but precisely because it isn’t.”

May’s employment growth was a bit more than the average monthly gain of 172,000 jobs during the past years. It shows companies stayed optimistic despite increased payroll taxes and the across-the-board spending cuts from the sequester that began March 1.

While the economy continues to mend at a slow pace–economists would like to see 200,000 or 300,000 jobs created a month–a soaring stock market and recovering in housing is leading to questions about when the Federal Reserve will end its easy monetary policies. Fed Chairman Ben Bernankeand other officials will likely need to see more growth than what come in May to consider ending its $85 billion-a-month bond-buying program. Specifically, Fed presidents like Eric Rosengren and Charles Evans say they want to see at least 200,000 jobs added monthly before tapering begins.

Fannie Mae Chief Economist Doug Duncan sees little in the figures, saying, “Today’s report did not provide additional clarity on whether the Fed’s tapering of its asset purchase is a few months away as expected by many market participants.”

Among the most actively traded stocks this morning, TiVo TIVO -17.87% shares sank 15.4% to $11.58 after settling a DVR suit with Google GOOG +0.98%‘s Motorola. Thermo Fisher Scientific TMO -2.06% gave up 1.8% to $85.43 on news that it will offer $2.2 billion in stock, the largest offering this year.

Iron Mountains shares fell 17.7% to $28.31. The company says a review by U.S. tax authorities may delay the company’s proposed conversion to a REIT.

Consumer goods stocks also experienced heavy trading. Anheuser-Busch InBev went up 1% to $93.59, as Kroger Co. added 1.7% to $33.69.