Unemployment rate falls to near six-year low of 6.1 percent

(Reuters) - U.S. employment growth jumped in June and the unemployment rate declined to near a six-year low of 6.1 percent, effectively dispelling fears about the economy's health and underscoring its momentum heading into the second half of 2014.

KEY POINTS:

* Consensus estimate was 212,000 jobs and 6.3 percent unemployment

* May's number was revised up to 224,000 from 217,000; April to 304,000 from 282,000

* The private sector added 262,000 jobs

* U-6 unemployment down to 12.1 percent from 12.2 percent, and the lowest since October 2008

* Household survey shows the workforce grew by 81,000, employment by 407,000

COMMENTS:

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ SE, NEWPORT BEACH, CALIFORNIA:

“This comprehensively strong jobs report is good news for Main Street. The employment challenge is transitioning from regaining cyclical losses to securing lasting increases in earnings and overcoming more decisively structural impediments to job creation. Markets are torn between the good economic news and the risk this entails for a super accommodative Federal Reserve.”

JACOB OUBINA, SENIOR U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

“It’s an extremely bullish report. Not only did you have a gangbusters headline and private read but you had a diffusion index that was 64.8, which shows significantly healthy breadth. The declining unemployment rate to 6.1 percent was legitimate as we didn’t have any change in the participation rate, it was all on the employment side. It’s a report that really checks off all the positive boxes, I don’t think you could have asked for a stronger read.”

“The Fed are going to continue to monitor the wage picture. There was an increase in the wage pie and that’s a trend that continues upward. If these dynamics remain in place in the second half of the year, you are going to see a flow through to a slightly firmer inflation profile and then the Fed will have to at least limit the rhetoric on this disinflationary fear that they’ve been on.”

DARRELL CRONK, DEPUTY CHIEF INVESTMENT OFFICER, WELLS FARGO PRIVATE BANK, NEW YORK:

“It’s a very good number across the board. I don’t see really any bad signs in the number at all. Not just the headline, the 288,000 jobs, but every one of the sectors across the board – businesses, services, retail, construction – added nice jobs in the month of June. What I really had my eye on, was the lower half of the report because I wanted to see if there was some wage inflation creeping into the data. Because we’ve had 2 or 3 months now of pretty hot inflation data without wage data, most of it has come from other sources. So as the labor market keeps tightening it will be ever more important to focus on that inflation data that is creeping through the wages.

At 288,000 we are closing up to 300,000 (jobs) so that could get a little bit negative reaction from both the stock market and the bond because you start to have these conversations again about does this pull forward the Fed and the first interest rate. And that is definitely what you are seeing in the bond market so it doesn’t shock me the futures are turning a bit on this because it will push what has been a pretty dovish Fed to continue look at this data. We all know that tapering is kind of on auto pilot and that will conclude and be done but this fall, but the real question is when do we start looking for and pricing in that first interest rate hike. This data definitely leans toward, it doesn’t make the full argument, but it leans toward pulling forward that time horizon as the job market strengthens. At 6.1 percent, you are getting close to a 5 percent handle on unemployment. With the Fed’s dual mandate of full employment and managing to inflation, a little bit of the wind could come out of their dovish sails here."

DAVID KEEBLE, GLOBAL HEAD OF INTEREST RATE STRATEGY, CREDIT AGRICOLE CORPORATE & INVESTMENT BANKING, NEW YORK:

“It’s very difficult to find anything wrong in the report. It’s firing on all cylinders. No doubt it brings forward the date of the rate hike for the market since the 6.1 percent unemployment rate is virtually back in ‘normal’ territory. We have a short trading day today, a day off tomorrow and then we’ll have to digest supply next week. Treasuries should remain under pressure. We are seeing buying on this dip.”

PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS, NEW YORK:

“It’s an awesome number. Our number was 273,000. We were way high on the Street.

“We’ve had a phenomenal run here. The market’s going to keep grinding higher, but it’s not as if we got the huge valuation imbalance, at 16 times earnings, that we had at the bottom of the market in ’09 when stocks were trading at 10 times earnings. So stocks will continue to work higher. We’re convinced that we’ll see 2,100 on the S&P 500 by the end of the year, but we’re pushing up to 2,000 right now, so you don’t have the huge valuation imbalance and that’s why you’re not going to see a huge jump here. You’ll see the market continue to grind up, but not leap higher."

MARK STANCIL, PARTNER, FRENCH WOLF & FARR, ATLANTA:

"It’s a fifth month in a row we are seeing monthly payrolls above 200,000. This should help us with second-half growth after the first quarter contraction. Another positive aspect was the 2.0 percent year-over-year growth in weekly hours worked. But the participation rate remained flat, hovering at historic lows. The stock market should be up a bit on this. Profit margins are at historic peaks. With jobs picking up, this should help the overall economic growth."

GREG PETERS, SENIOR PORTFOLIO MANAGER AT PRUDENTIAL FIXED INCOME, NEW YORK:

“I think it is a good number no matter how you parse the figure. This was definitely a solid print, so I think across-the-board this was a pretty solid jobs gains. It doesn’t mean a lot for interest rates as I don’t think one print changes the dynamics. I think this figure does introduce some volatility into the market. The real question is how the market will respond -- I don’t think we’ll have a huge breakout in interest rates as it is just one number.”

STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES, PITTSBURGH:

"It’s strong across the board and there were upward revisions in the prior two months. The drop in the unemployment rate was for the right reason, making it a legitimate improvement. We are still not seeing any acceleration in wage inflation. It’s a strong report that capped off a strong quarter. Everything in the report points to 4.0 percent growth in the second quarter. Bonds are selling off. We should see 10-year yield drift back up 2.70-2.75 percent. It’s an easy call for the Fed at the end of this month to say we could taper another $10 billion, but they will probably not raise rates at least a year from now."

RICK MECKLER, PRESIDENT, LIBERTYVIEW CAPITAL MANAGEMENT, JERSEY CITY, NEW JERSEY:

"We’ve had such a big move to this point that good data just isn’t enough to drive this market much further. It’s really coming down to company earnings, that’s the only thing left that can lead this market higher.”

Good data “is what’s priced into the market. A bigger question is how does this affect interest rates, as we’ve been able to keep low rates as the economy comes back. Can the (economy) grow and yet have interest rates remain low? I think that will be a challenge.”

MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONESTRADING, GREENWICH, CONNECTICUT:

"This is obviously very strong across the board, the only other thing you might have hoped for is an uptick in participation. Although, we're at record highs and it is telling that equities are having a little trouble with this number. That could indicate worries that the Fed is behind the curve, and that it shouldn't be on autopilot with respect to tapering. Maybe they should be doing it faster."

WAYNE KAUFMAN, CHIEF MARKET ANALYST, ROCKWELL SECURITIES, NEW YORK:

"It is a good number and for once it lines up with the ADP report. This is very good, well above expectations, and what we've been wanting to see. Still, this isn't a catalyst to bring in buyers, since everyone knows the picture is improving. It isn't a huge surprise. In the very near-term, this could be enough to get us to 17,000. We're going there, either today or sometime soon.

"I don't think the market is overvalued at current levels. Until earnings forecasts stop rising, I don't see the market taking a big drop.

"Now people will start focusing on interest rates-- 10-year is jumping up above resistance. I don't think that will be an issue unless it gets around 2.8 percent."

MARKET REACTION:

STOCKS: Index futures are little changed to slightly lower than before the reportBONDS: Treasury yields are rising; 10-year yield touches two-month high near 2.70 percent

FOREX: Dollar index is stronger

(Americas Economics and Markets Desk; +1-646 223-6300)