Employment growth exceeds expectations
Surprising strength may make the Fed more likely to ease stimulus efforts.
WASHINGTON — Surprisingly resilient job growth over the last three months has raised the likelihood that the Federal Reserve will start pulling back its massive bond-buying stimulus this fall, but the near-term employment outlook may not be as bright as the latest numbers look.
The much-anticipated employment statistics for June showed that employers added 195,000 jobs over the month, despite analysts’ expectations that federal spending cutbacks and the soft global economy would hold payroll growth to no more than 165,000. What’s more, the Labor Department’s report Friday revised substantially higher the job gains for May and April, bringing the number of new jobs to nearly 200,000 in those months as well.
The nation’s jobless rate remained at 7.6% as more jobless workers, notably women, entered the labor force and offset the increase in employment. That may be a sign that more people are hopeful about their chances in the job market.
“It’s like bricks off my shoulders,” said Lis De Bats, a 54-year-old Agoura Hills resident who recently landed a job after a 15-month search. “So many people around you, as much as they love you, think you aren’t trying hard enough. They don’t know what it’s like down in the trenches.”
Yet even as these positive trends buoyed investors’ spirits — leading stock gauges rose about 1% on Friday — a large share of the new jobs have come in lowerpaying businesses. And it’s far from clear that the recent pattern of overall job growth can hold up in the second half of this year.
One strong case that hiring will slow in coming months is that economic output — that is, the total value of goods and services produced in the nation — has been weak since last fall. And employment generally tracks economic growth with a lag.
“If we’re hiring all these people, where is the output?” asked Bill Dunkelberg, chief economist for the National Federation of Independent
Business. The federation’s survey of small firms in June showed an overall decline in average employment over the last three months.
Macroeconomic Advisers, a major forecasting firm, sees smaller job growth over the rest of this year, also largely because of the recent sluggish economic output. Its latest projection has the economy expanding at an annualized rate of 1.3% in the just-completed second quarter, similar to the average of the prior two quarters.
Another “rationale for a sharp slowing in payroll gains in the second half of this year is that … well … it’s already happened,” the firm said in a report this week, adding that an upturn in the low productivity of late also would tamp down hiring.
Other experts are more bullish about future hiring. Some think economic growth will come in stronger than forecast. And some cite other reports suggesting that small employers, which have lagged in sales and job growth during this recovery, are beginning to bulk up staff.
There may be more startups under the radar juicing up the economy as well, analysts said, especially with the housing market coming back to life. The Obama administration’s decision this week to delay until 2015 the employer mandate of the new healthcare law also could help employment; that provision requires employers with more than 50 full-time workers to provide health insurance or pay a fine.
“I think we actually start to pick up some speed from here,” said Phil Orlando, chief equity strategist at the asset management firm Federated Investors, referring to hiring by small firms in particular.
Whatever their job forecasts, Orlando and most other economists agree the Fed will announce a tapering of its $85-billion-a-month bond-buying program as early as at its September policy meeting. The stimulus has helped hold down longterm interest rates, which have supported car and home purchases as well as spurred investment in stocks and other assets.
The Fed has said it will keep the bond-buying going until there is substantial improvement in the outlook for the job market, and Fed Chairman Ben S. Bernanke suggested it wouldn’t be until the jobless rate dipped to about 7% that the program would be stopped. Nonetheless, Wall Street has been anxious about what might happen once the Fed pulls back some of its easy-money policies.
With the June data and upward revisions for the prior two months, job growth has averaged about 200,000 a month in the first half of this year — up from about 180,000 last year. Although that’s not a huge increase, the steady gain will instill greater confidence in the Fed that the economy is on surer footing.
So far, analysts have been pleasantly surprised by the relatively small hit to employment from the government spending cuts under the so-called sequestration, which took effect in March.
Federal payrolls dropped by 5,000 in June and are now down 65,000 from a year ago, although about a third of the annual loss is from cuts at the troubled postal service.
The country’s housing recovery has powered the economy and labor market, contributing to hiring at real estate offices, building-supply stores and even auto dealerships, as many people in the construction trade buy trucks.
The construction industry itself added 13,000 jobs in June after taking on 7,000 more workers in May.
Rising housing values, along with higher stock prices, also boosted consumer confidence. More people are buying cars. And spending at restaurants and stores helped push up employment.
Retailers added 37,100 positions last month, including 8,100 at clothing stores. Restaurants and drinking establishments continued their industry-leading growth: Combined, their payrolls surged by 51,700 in June, with job growth now exceeding 400,000 over the last 12 months.
But the big downside is that retail and food services, on average, pay lower wages and offer fewer hours and poorer benefits.
“Those industries have lots of job openings all the time,” said Heidi Shierholz, a labor economist at the leftleaning Economic Policy Institute. “Where they might go unfilled in boom times, people have no options now,” she said.
Manufacturing paid an average hourly wage of $19.26 for nonsupervisory workers in June, compared with $11.75 for such workers in leisure and hospitality. But factory payrolls dipped in June for the fourth straight month, reflecting weakness in the global economy, particularly Europe.
The average hourly earnings of all private-sector workers went up a solid 10 cents from May to June to $24.01, but analysts noted that it’s managerial workers in general who have enjoyed the recent acceleration in earnings.
Some newly hired employees have taken pay cuts, which are common for experienced workers coming off layoffs. Another indication of the still-distressed labor market is the large number of part-time workers who want more hours. The ranks of this involuntary part-time workforce surged by 322,000, to about 8.3 million.
Harry Holzer, a Georgetown University professor and former Labor Department chief economist in the Clinton administration, agrees that the employment outlook is muddled by the tepid economic growth. But he also noted employment growth has been lagging for so long that businesses may now have little choice but to add staff.
“They squeezed everything they could from the current workforce,” Holzer said, adding that in past recoveries and expansions it wasn’t uncommon to have months of job growth in the 300,000 and even 400,000 range.
“It’s not like 200,000 is so great,” he said.