U.S. Economy: Payrolls Increased More Than Forecast in July
American employers added more jobs than forecast in July and wages climbed, easing concern the world’s largest economy is grinding to a halt.
Payrolls rose by 117,000 workers after a 46,000 increase in June that was larger than earlier estimated, the Labor Department said today in Washington. The median estimate in a Bloomberg News survey called for a gain of 85,000. The jobless rate dropped to 9.1 percent as discouraged workers left the labor force. Average hourly earnings climbed 0.4 percent.
Faster job gains are needed to bolster consumer spending, which makes up 70 percent of the economy and rose last quarter at the slowest pace in two years. At the same time, the report may relieve pressure on Federal Reserve policy makers meeting next week to take immediate steps to sustain the recovery.
“There is not a lot to celebrate even though it was better than most feared,” said Richard DeKaser, an economist at Parthenon Group in Boston, who correctly forecast the gain in payrolls. “The latest data don’t really reach the threshold of exigent action by the Fed.”
Treasuries fell, pushing yields up from the lowest this year. Yields on 10-year notes rose 17 basis points, or 0.17 percentage point, to 2.57 percent at 4:04 p.m. in New York. The Standard & Poor’s 500 Index fell to 1,199.38 at the close, down less than 0.1 percent from yesterday and extending the worst slump since 2009 as technology shares declined.
President Barack Obama, three days after signing a measure to cut at least $2.1 trillion from federal budget deficits over a decade, used today’s jobs report to renew his call for an extension of unemployment benefits and a temporary payroll tax reduction.
“There’s no contradiction between us taking some steps to put people to work right now and getting our long-term fiscal house in order,” Obama said at the Washington Navy Yard, where he was promoting a proposal to give tax credits to companies that hire unemployed military veterans. “The more we grow, the easier it will be to reduce our deficits.”
Estimates of the 88 economists surveyed by Bloomberg for overall payrolls ranged from no change to a 150,000 increase. The unemployment rate was projected to hold at 9.2 percent, according to the survey median. Estimates ranged from 9.1 percent to 9.4 percent.
The jobless rate declined as 193,000 people left the labor force and the number of unemployed dropped by 156,000. The share of the eligible population holding a job declined to 58.1 percent, the lowest since July 1983.
Giving Up Search
“More and more individuals are giving up the job search,” said Patrick O’Keefe, a former deputy assistant secretary of labor and current director of economic research at J.H. Cohn LLP in Roseland, New Jersey.
Private hiring, which excludes government agencies, climbed 154,000 last month after an 80,000 gain. It was projected to rise by 113,000, the survey showed.
Some companies are firing workers to keep costs down as the economy slows and uncertainty builds over the European default risk and U.S. regulatory and tax costs.
Cisco Systems Inc. (CSCO), the largest networking-equipment maker, plans to eliminate about 6,500 jobs, or 9 percent of its full- time global workforce, to help trim $1 billion in annual costs and step up profit growth.
Government payrolls decreased by 37,000 in July, the ninth straight drop. Employment at state governments fell 23,000 last month, almost entirely due to a partial shutdown of the Minnesota government.
About 23,000 Minnesota state workers were temporarily laid off during a three-week shutdown that ended July 21 after the Republican-controlled legislature passed a budget as part of a broad agreement that included more spending while preventing a tax increase.
Payroll increases of around 125,000 a month are needed to keep the unemployment rate steady, while about 200,000 a month would bring it down a percentage point over a year, according to Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
The S&P 500 tumbled 4.8 percent yesterday and two-year Treasury yields plunged to a record low on signs the recovery is flagging.
“It looks like a garden variety soft patch for the economy to us -- no more, no less,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e-mail after today’s jobs report.
In his semi-annual testimony to Congress last month, Fed Chairman Ben S. Bernanke said the “economy still needs a good deal of support.”
The Federal Open Market Committee meets for one day on Aug. 9. At their last meeting in June, Fed officials decided to keep the central bank’s balance sheet at a record to spur the slowing economy after completing $600 billion of bond purchases.
Consumer borrowing jumped in June by the most in four years, led by a gain in non-revolving debt, including student loans, a report from the Federal Reserve also showed today. The $15.5 billion surge in credit was three times as much as projected by economists surveyed and was the biggest gain since August 2007.
Unemployment and elevated gasoline and food costs may be straining household budgets, prompting consumers to borrow to pursue more schooling or turn to their credit cards to purchase necessities.
The economy grew at a less-than-forecast 1.3 percent pace in the second quarter following revised growth of 0.4 percent in the first three months of the year that was less than previously estimated, Commerce Department figures showed last week. Consumer spending grew 0.1 percent, the smallest gain since the second quarter of 2009, the final months of the recession.
Factory payrolls jumped by 24,000 in July after an 11,000 gain in the previous month. Half the increase was in the auto industry, which had fewer seasonal layoffs than typical for July.
Employment at service-providers increased 75,000 in July, the most in three months. Construction employment rose by 8,000 workers, the biggest gain since February.
Average hourly earnings climbed 10 cents to $23.13, today’s report showed. The average work week for all workers held at 34.3 hours.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.1 percent from 16.2 percent.
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