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Jobs report is decisive evidence of a growing economy despite early slump

By Reuters
Thursday, July 3, 2014 12:10 EDT
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Job seekers line up to meet with a recruiter during a job fair in Hayward, California on April 24, 2013. (AFP)
 
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By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employment growth jumped in June and the jobless rate closed in on a six-year low, decisive evidence the economy was moving forward at a brisk clip after a surprisingly big slump at the start of the year.

Nonfarm payrolls increased by 288,000 jobs last month and the unemployment rate fell to 6.1 percent, its lowest level since September 2008, the Labor Department said on Thursday. Data for April and May were revised to show a total of 29,000 more jobs created than previously reported.

“It’s an extremely bullish report. It’s a report that really checks off all the positive boxes. I don’t think you could have asked for a stronger read,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.

Employment has now grown above a 200,000-jobs pace for five straight months for the first time since the technology boom in the late 1990s. The economy has added an average of 231,000 jobs per month this year, the highest six-month average since 2006.

The data gave a lift to U.S. stocks, with the Dow Jones industrial average .DJI crossing the 17,000 threshold for the first time. Prices for U.S. Treasuries fell, while the U.S. dollar gained against a number of major currencies, as traders bet on an earlier interest rate hike from the Federal Reserve.

JPMorgan moved up its forecast for a rate increase to the third quarter of next year from the fourth quarter, while interest rate futures moved to show a 55 percent probability of a rate hike in June 2015.

“Markets are torn between the good economic news and the risk this entails for a super accommodative Federal Reserve,” said Mohamed El-Erian, chief economic adviser at Allianz SE in Newport Beach, California.

The report, which added to signs that have suggested a plunge in economic output in the first quarter was a weather-driven anomaly, showed widespread job gains.

It also showed a bit of a drop in the number of Americans who have been out of work for at least 27 weeks, which at 3.1 million was the smallest pool since February 2009.

Average hourly earnings, which are being closely watched for signs of wage pressures that could signal dwindling slack in the labor market, increased by 6 cents in June. The 12-month gain slipped to 2.0 percent from 2.1 percent, suggesting little build up in wage-related inflation pressures.

LABOR MARKET TIGHTENING

The 0.2 percentage point drop in the jobless rate occurred despite a swelling of the labor force.

Nevertheless, the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was steady at 62.8 percent, a low struck in December for the first time since 1978.

A broader measure of unemployment, which includes people who want a job but have given up searching and those working part-time because they cannot find full-time jobs, fell to 12.1 percent, the lowest level since October 2008.

The long-term unemployed accounted for 32.8 percent of the 9.5 million jobless Americans. The median duration of unemployment fell to 13.1 weeks from 14.6 weeks in May, the lowest in more than five years.

Fed Chair Janet Yellen has argued there is still considerable slack in the labor market, citing the low labor force participation, which she says partly reflects the departure of discouraged job seekers who could be enticed back into the workforce if conditions were to tighten.

In her view, that would dampen wage pressures and allow the Fed to bide its time before raising overnight borrowing costs, which it has held near zero since December 2008.

Job gains in June were across all sectors. Manufacturing payrolls increased by 16,000, rising for the 11th straight month. Construction jobs advanced for the sixth consecutive month and government employment increased 26,000.

Services industries employment jumped by 236,000, the biggest gain since October 2012. A separate report on Thursday showed services sector activity expanded strongly in June.

(Reporting by Lucia Mutikani; Additional reporting by Karen Brettell and Charles Mikolajczak in New York and Jason Lange in Washington; Editing by Paul Simao)

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