US economy posts largest gains in June jobs report in eight months
Payrolls increase 287,000 in sign of strength, but before Brexit vote shock
US job growth surged in June as manufacturers and other employers boosted hiring, confirming the economy has regained speed after a first-quarter lull, but tepid wages suggested the Federal Reserve will probably not raise interest rates soon.
Nonfarm payrolls increased by 287,000 jobs last month, the largest gain since last October, the Labor Department said on Friday. May payrolls were revised sharply down to show them rising 11,000 rather than the previously reported 38,000.
The sign of strength in the economy, however, precedes Britain’s stunning vote last month to leave the European Union. The so-called Brexit referendum on June 23 roiled financial markets, raising fears that sustained volatility might negatively impact companies’ hiring and investment decisions.
“For the Fed, this report is likely to offer some encouragement on the underlying labour market backdrop, though it is unlikely to change the current ‘wait and see’ policy stance as they assess the fallout from the Brexit vote,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
The Fed raised rates in December for the first time in nearly a decade, but markets now expect no further increase this year. Last month’s payrolls tally beat economists’ expectations for an increase of 175,000 jobs.
US stocks were trading higher on the employment data, while prices for US government debt fell slightly. The dollar was little changed against a basket of currencies.
While the unemployment rate rose two-tenths of a percentage point to 4.9 per cent, that was because more people entered the labour force, a sign of confidence in the jobs market.
With the jobless rate rising, average hourly earnings increased only two cents or 0.1 per cent in June, suggesting some slack still remains in the labour market. That took the year-on-year gain in earnings to 2.6 per cent from 2.5 per cent in May.
Economists say wage growth of between 3.0 per cent and 3.5 per cent is needed to lift inflation to the Fed’s 2.0 per cent target. A top Fed official said this week the central bank would like to see inflation accompanied by wage gains.
“Wage growth remains subdued, which could reflect the fact that there is still slack in the labour market,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “Or perhaps it is a function of low inflation expectations and low productivity, which restricts the ability or desire of businesses to raise wages.”
The strong rebound in June payrolls added to data on consumer spending and housing in suggesting that economic growth accelerated from the first-quarter’s anaemic 1.1 per cent annualized rate. The Atlanta Fed is currently forecasting the economy growing at a 2.4 per cent pace in the second quarter.
Manufacturing employment increased 14,000 last month after shedding 16,000 jobs in May. Although manufacturing only accounts for 12 per cent of the economy, it is considered a leading growth indicator.
The retail sector added 29,900 jobs, more than reversing the prior months’ weakness. The leisure and hospitality sector gained 59,000 jobs, the most in nearly 1-1/2 years. Temporary-help jobs, a harbinger for future hiring, rebounded 15,200.
Healthcare and social assistance payrolls jumped 58,400. The return of 35,100 Verizon workers, who were excluded from May’s payroll count while on a month-long strike, boosted information sector employment last month.
Government added 22,000 jobs, but construction payrolls were unchanged after two months of declines.
Despite job gains in June that were the best for the year, forward momentum in the labour market has slowed. Job gains averaged 282,000 per month in the fourth quarter, but employment has increased by an average of only 171,500 jobs per month in the first half of this year.
Economists say the deceleration is normal given the relatively advanced age of the economy’s recovery from the 2007-09 recession, with the labour market now near full employment.
The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of percentage point to 62.7 per cent.
A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell 0.1 percentage point 9.6 per cent, the lowest since April 2008.