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U.S. Adds 195,000 Jobs; Unemployment Remains 7.6% U.S. Adds 195,000 Jobs; Unemployment Remains 7.6%
(about 5 hours later)
The economy added 195,000 jobs in June, the Labor Department reported Friday morning, slightly more than analysts had been expecting and suggesting healthier growth. Strong, but not too strong.
Wall Street has been feverishly awaiting the June employment report. Not only does it provide another indicator of overall economic strength, it also affects the timing of the Federal Reserve’s decision to start easing back on a major part of its stimulus efforts. New jobs data on Friday offered hope for this elusive middle ground in the economy, as the Federal Reserve wrestles with when to ease its stimulus efforts without endangering the recovery and the markets.
Experts on Wall Street had been expecting the economy to add 165,000 jobs in June, so the better-than-expected monthly number, along with upward revisions in the number of jobs created in April and May, makes it more likely the Fed will begin stepping back in the coming months. In the first half of 2013, a better indicator than the one-month snapshot, the economy added 202,000 jobs a month, up from the 183,000 monthly pace in 2012. The pace of job creation in June was sufficient to please investors and keep the central bank on course to slowly begin pulling back on its major bond-buying program this fall. But the job gains were muted enough to calm worries of an abrupt exit by the Fed, a fear that has weighed on the markets lately.
“The economy continues to show some momentum,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. The employment report, which showed the economy added 195,000 jobs, was the first since the Fed chairman, Ben S. Bernanke, said in June that policy makers were ready to begin tapering the stimulus later this year if the labor market continued to improve. The jobless rate was unchanged, at 7.6 percent.
Along with job creation, the Fed is closely watching unemployment levels. The unemployment rate, which is based on a separate survey from the one that tracks jobs, remained at 7.6 percent, unchanged from May. The timing of the Fed action is critical. The central bank’s program of buying $85 billion a month in Treasury securities and mortgage-backed bonds has not only kept long-term interest rates low for borrowers, including big companies as well as individual home buyers, it has also helped prop up Wall Street.
The chairman of the Federal Reserve, Ben S. Bernanke, said two weeks ago he anticipated the bond-buying program would wrap up when the unemployment rate sinks to 7 percent. The Fed estimates that could happen by the middle of next year. The possibility that the Fed might move more quickly than expected to dial back the program has prompted investors to sell both stocks and bonds in the last six weeks and has raised rates on mortgages and other loans.
If the job market continues to improve, and other indicators like manufacturing activity and consumer spending remain healthy, the central bank could begin scaling back the stimulus program as early as September, Ms. Meyer said. Buoyed by the promise of moderate economic growth and a slow but steady tapering on the part of the Fed, traders pushed the stock market higher on Friday, with major indexes gaining about 1 percent.
“We had been calling for December, but if the next few reports come in at these levels, it could help to justify a tapering by the Fed in September,” she said. The 195,000 jobs added in June was significantly above the 165,000 monthly pace analysts had been expecting. And the government sharply revised upward figures for job gains in April and May, increasing the average monthly gain in the first half of 2013 to 202,000 jobs.
Other analysts echoed Ms. Meyer’s view. But the picture painted by the data hardly reflected a booming economy.
“This was a solid report and it will be seen by the Fed as fully consistent with tapering in September,” said Dean Maki, chief United States economist at Barclays. In addition, Mr. Maki noted, average hourly earnings rose 2.2 percent year-over-year, close to a high for the current recovery. The unemployment rate, which is based on a different survey from the one that tracks job creation, remained stuck at 7.6 percent, far higher than the historical pattern for this stage of a recovery. Other measures of joblessness actually rose, with the broadest one that includes workers forced to accept part-time positions jumping to 14.3 percent, from 13.8 percent.
In early trading Friday, stocks rose slightly while bond yields jumped — another sign traders are betting on a move by the Fed sooner rather than later. Bond yields have surged in the last six weeks, and while that is typical when the economy is improving, it also pushes mortgage rates higher, a concern for home buyers. “Beyond the headline numbers for job growth, it gets a little more mixed,” said Jan Hatzius, chief economist at Goldman Sachs. “There is still a lot of slack in the labor market.”
While the economy has held up better than some analysts had expected in the face of tax increases and automatic cuts in federal spending this year, overall growth in economic output has been tepid. The economy grew at an annual rate of 1.8 percent in the first quarter, short of what’s needed to quickly lower the unemployment rate or reduce the ranks of the jobless. Although the economy has held up better than some analysts expected in the face of tax increases and automatic cuts in federal spending this year, overall growth in economic output has also been tepid. The economy grew at an annual rate of 1.8 percent in the first quarter, short of what’s needed to quickly lower the unemployment rate.
Another factor holding back strong job growth has been a steady drop in public employment. In June, private employers added 202,000 positions, while state, local and federal governments shed 7,000 workers. Still, the job figures for June were enough to prompt Mr. Hatzius and other leading economists on Wall Street to predict that the Fed could announce a shift in policy in September, rather than waiting until December.
The manufacturing sector, often viewed as a barometer for the broader economy, lost 6,000 positions in June. Employment in the construction sector, which has been volatile, rose by 13,000. “This was a solid report and it will be seen by the Fed as fully consistent with tapering in September,” said Dean Maki, chief United States economist at Barclays.
For unemployed workers, the odds of finding a job remain daunting. Since he was let go by an electronics company in November, John Vretis has made it through the first and second cut of applicants at several companies near his home in Moline, Ill. In addition, Mr. Maki noted, average hourly earnings rose 2.2 percent year-over-year, a pace that is near a high for this recovery. Before setting a firm date, Fed policy makers will be closely watching to see if the job market maintains momentum through July and August. “It’s not a done deal in September, just more likely,” Mr. Hatzius said.
But Mr. Vretis has yet to get an offer. He recently interviewed at a metals company that is adding 25 workers a month, but was told it had 4,000 applicants for those positions. That was benign enough for traders on Friday. The Standard & Poor’s 500-stock index rose 16.48, or 1.02 percent, to 1,631.89, while the Dow Jones industrial average jumped 147.29, or 0.98 percent, to 15,135.84, and the Nasdaq gained 35.71, or 1.04 percent, to finish the day at 3,479.38.
“I’m 55 and I know that’s an issue,” said Mr. Vretis, who holds an associate degree in accounting. “When people see me, they think ‘This guy might be too old.' ” In the bond market, interest rates moved higher, as investors dumped debt on anticipation of faster growth and quicker Fed action. The 10-year Treasury note fell 1 30/32, to 91 17/32, while its yield jumped to 2.74 percent, from 2.50 percent late Wednesday.
Amid the competition, Mr. Vretis has broadened his search. He earned $17 an hour at his old job, but he said he’s now willing to work for as little as $9 an hour. The Fed’s stance has bolstered long-term rates, but the central bank is expected to keep short-term rates low at least until 2015.
“That’s more than I’m getting on unemployment,” he said. He added that when he fills out application forms these days, he leaves off what he was paid by his former employer out of fear of pricing himself out of today’s market. While Wall Street is focused on the Fed’s timing because of the markets, observers from other quarters say any move to reduce the stimulus this year would be too soon because of the high unemployment rate and the kind of jobs that are being created.
Sharon MacGregor of Paterson, N.J., is also willing to work for much less than she used to earn. For example, more than half of the 195,000 jobs added in June were in two sectors — retailing and leisure and hospitality — which both tend to be low-paying. The manufacturing sector, which often pays better, shed 6,000 workers in June, its third consecutive month of losses.
Ms. MacGregor holds a bachelor’s degree in psychology and worked as an administrator and meeting coordinator for five years before she was laid off last summer. Ms. MacGregor, 42, also has two decades of experience as a graphic designer but that hasn’t made the search any easier. “I’d take the job-creation picture with a grain of salt,” said Arne L. Kalleberg, a professor of sociology at the University of North Carolina who has studied the gap between better-paid, higher-skilled positions and low-skill, low-wage jobs. “What matters is the quality of the jobs.”
“Seven years ago, I was making $63,000 a year,” she said. “If I asked for that now, forget it.” Ms. MacGregor is now cutting her salary expectations, she said, both to make ends meet and to keep her prospects for future employment viable. In addition, although the portion of the population that is employed or looking for work increased by a tenth of a percentage point to 63.5 percent in June, it remains well below the 66 percent rate that prevailed before the recession. Similarly, at 11.8 million, the total number of unemployed Americans was unchanged in May.
“I don’t want to work for so much less but I would, just to get back on the market and not to have a gap in my résumé,” she said. All of these factors mean it is too soon for the Fed to reverse course, said Christine L. Owens, executive director of the National Employment Law Project, an advocacy group for low-wage and unemployed workers. “We need all the help we can get,” she said. “We still have a jobs crisis and an unemployment crisis.”
The least educated workers, like those who lack a high school degree, remain the worst off, although the unemployment rate for them did drop slightly to 10.7 percent in June, from 11.1 percent in May. Unemployment among workers with a bachelor’s degree or more rose by 0.1 percentage point, to 3.9 percent.
Because of the backlog of unemployed workers, many out-of-work job hunters say the odds can seem daunting.
Since John Vretis was let go by an electronics company in November, he has made it through the first and second cut of applicants at several companies near his home in Moline, Ill. But Mr. Vretis has yet to receive an offer. He recently interviewed at a metals company that is adding 25 workers a month, but was told it had 4,000 applicants for those positions.
“I’m 55 and I know that’s an issue,” said Mr. Vretis, who holds an associate’s degree in accounting.
With this competition, Mr. Vretis has broadened his search. He earned $17 an hour at his old job, but he said he was now willing to work for as little as $9 an hour.
“That’s more than I’m getting on unemployment,” he said. When he fills out application forms these days, he said, he leaves off his previous wage level out of fear of pricing himself out of today’s market.
Sharon MacGregor of Paterson, N.J., is also willing to work for much less than she used to earn, even if it means ultimately taking a second job.
Ms. MacGregor holds a bachelor’s degree in psychology and worked as an administrator and meeting coordinator for five years before she was laid off last summer. Ms. MacGregor, 42, also has two decades of experience as a graphic designer, but that hasn’t made the search easier.
“Seven years ago, I was making $63,000 a year,” she said. “If I asked for that now, forget it.” Ms. MacGregor is cutting her salary expectations, she said, both to make ends meet and to keep her prospects for future employment viable.“I don’t want to work for so much less but I would, just to get back on the market and not to have a gap in my résumé,” she said.