Job growth blew past expectations and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago, creating a firm foundation for a stronger U.S. economic expansion.
Payrolls rose by 288,000 workers following a 224,000 gain the prior month that was bigger than previously estimated, Labor Department figures showed today in Washington. The 1.39 million increase in employment over the past six months is the biggest over a similar period since early 2006.
Companies such as Ford Motor Co. are adding staff and boosting output to meet improving sales, which in turn will lead to gains in incomes that will spur even more demand. The yield on Treasury securities climbed as the jobs report called into question how much longer Federal Reserve policy makers can keep their benchmark interest rate near zero to nurture the economy.
“We’re seeing a self-sustaining recovery where production growth leads to job growth, which leads to consumption growth,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, and the top forecaster of payrolls the past two years, according to data compiled by Bloomberg. “With the unemployment rate coming down, the Fed is in a bit of a bind.”
The Dow Jones Industrial Average climbed above 17,000 for the first time on the improving labor market as Treasury securities dropped. The Standard & Poor’s 500 index rose 0.5 percent to 1,985.44 at the close in New York, and the yield on the benchmark 10-year note increased to 2.64 percent at 1:24 p.m. from 2.63 percent late yesterday.
The decrease to 6.1 percent from May’s 6.3 percent put the jobless rate at the lowest level since September 2008. Fed policy makers had projected in their meeting last month that it wouldn’t get that low until the end of the year.
The gains in hiring and drop in joblessness prompted economists at banks such as JPMorgan Chase & Co. to push forward their estimate for when the central bank will raise the benchmark interest rate for the first time since 2006.
The median forecast in a Bloomberg survey of 94 economists called for a 215,000 advance in payrolls. Estimates ranged from gains of 145,000 to 290,000 after a previously reported 217,000 advance. The unemployment rate, which is derived from a separate Labor Department survey of households, was projected to hold at 6.3 percent, according to the survey median.
The need to fill openings prompted employers to give those out of work for the longest time a serious look. The number of Americans unemployed for 27 weeks or more fell to 3.1 million, the fewest since February 2009.
Factories took on the most workers in four months, while payrolls at private service providers climbed by the most since October 2012. An index gauging the breadth of private-industry hiring in June climbed to 64.8 from 62.9 a month earlier.
“The labor market is literally exploding,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It’s a full-on expansion. The economy is creating millions of jobs.”
Another report today showed service providers including construction firms and retailers expanded in June at the second-fastest pace in almost a year, indicating more momentum in the economy. The Institute for Supply Management’s non-manufacturing index eased to 56 in June from May’s 56.3, which was the highest since August, according to the Tempe, Arizona-based group.
Separate figures from the Labor Department today showed little change in the number of Americans filing applications for unemployment benefits last week, a sign that employers are limiting dismissals. Fewer firings typically foreshadow an acceleration of job growth.
Figures from the Commerce Department showed the U.S. trade deficit narrowed 5.6 percent in May to $44.4 billion, helped by record exports. The value of petroleum imports was the smallest since November 2010.
Today’s payrolls report showed that private employment, which excludes government agencies, rose by 262,000 in June after a 224,000 gain the prior month.
Paige Sims, 33, said a networking event helped her get hired as a product safety engineer at General Electric Co. She started work on June 30 after searching for about four months.
“It was a little easier” to find employment given her work experience of almost 10 years and her location in Greenville, South Carolina, a growing, highly industrial city with many large manufacturing facilities, she said.
“The labor market is growing for technical people like engineers and scientists, and may be a little more sluggish for those who’re in other fields,” said Sims.
At Dearborn, Michigan-based Ford, hiring is so strong that the automaker predicts it may beat a 2011 plan to bring on 12,000 new workers by 2015.
That’s because of stronger demand for automobiles. Cars and light trucks sold at a 16.9 million pace in June, the strongest since July 2006, after a 16.7 million rate in May, based on data from Ward’s Automotive Group. Deliveries at General Motors Co. and Ford, the two largest U.S. automakers, exceeded analysts’ estimates.
Recent strides in the labor market underscore the economy’s snapback from a first-quarter contraction. The economy shrank at a 2.9 percent annualized rate from January through March, the biggest drop-off since the first quarter of 2009, the Commerce Department reported last month. Consumer purchases grew at the weakest pace in five years.
Gross domestic product probably bounced back in the second quarter and will expand at an average 3.1 percent rate in the remaining two quarters of 2014, according to the median forecast in a Bloomberg survey conducted June 6 to June 11. Household purchases are also expected to improve, it showed.
Recent data are consistent with the outlook. Factories, propelled by the strongest orders of the year, sustained gains in June and are poised to be part of the rebound, the Institute for Supply Management’s manufacturing report showed this week.
Today’s Labor Department’s payrolls report also showed factory hiring increased by 16,000 in June. Employment at private service-providers jumped 236,000. Retailers took on 40,200 employees.
Average hourly earnings rose by 0.2 percent for a second month, to $24.45 in June from the prior month, and increased 2 percent over the past 12 months.
Fed Chair Janet Yellen said last month that she expects consumer spending will continue to grow at a “healthy rate,” in part as bigger income gains materialize.
“My own expectation is that as the labor market begins to tighten, we will see wage growth pick up some,” Yellen told reporters on June 18 after the Fed’s policy meeting. “If we were to fail to see that, frankly I would worry about downside risk to consumer spending.”
Yellen’s dashboard of job market progress spans nine measures, including payrolls, the jobless rate, underemployment, labor force participation, and the share of long-term unemployed workers. It also monitors the job openings rate, layoffs and discharges, the hires rate, and the quits rate.