Payroll Gains Exceeding Forecasts Signal Sustained U.S. Growth
Employers in the U.S. added more workers than forecast in July, easing concern the three-year expansion is faltering. Bigger payroll gains may be necessary to reduce an unemployment rate that climbed to a five-month high.
Employment increased by 163,000 last month, helped by a pickup at automakers and health-care providers, after a revised 64,000 June advance, Labor Department data showed yesterday in Washington. The median estimate of 89 economists surveyed by Bloomberg called for a rise of 100,000. The jobless rate, based on a separate survey of households, climbed to 8.3 percent.
Stocks rallied, sending the Standard & Poor’s 500 Index to the highest level since May, as the jobs data countered recent reports showing a contraction in manufacturing and cooler consumer demand. An unemployment rate that has been stuck above 8 percent since February 2009 is one reason why the Federal Reserve this week said it is prepared to take new steps if needed to boost the economy.
Separately, the Institute for Supply Management yesterday reported that non-manufacturing businesses, which make up about 90 percent of the economy, expanded at a faster pace in July than a month earlier.
The Labor Department data showed private payrolls, which exclude government agencies, rose 172,000, exceeding the forecast for a gain of 110,000. Including the July gain, the U.S. has recovered 4 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.
Among those who have found a job is Clayton Hopkins, 25. He’s starting work on Monday as a communications specialist at the San Francisco office of ICF International Inc., a consulting company. With a salary that will be 30 percent more than in his previous job, he’s planning to splurge on either an Apple Inc. iPad or a Google Inc. Nexus 7 tablet, in addition to a laptop.
“I’m ecstatic,” said Hopkins, who gets together with friends periodically to share job-hunting tips. “It’s pretty grim out there, so I’m excited to be doing something that both feeds my soul and my wallet.”
Employment at private service providers increased 148,000, the most in five months and reflecting more jobs in education and health services. Construction companies cut payrolls by 1,000 workers, while retailers added 6,700.
Factory payrolls rose by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts.
The figures may have reflected fewer shutdowns at automakers for annual retooling related to the new model year, indicating the jump will be reversed this month. Chrysler Group LLC and Ford Motor Co. (F) are among companies that said they would idle fewer plants.
Honda Motor Co. (7267) is looking to expand. The Tokyo-based automaker, which relies on U.S. vehicle sales for more than half its profit, said it is investing $40 million at its Greensburg, Indiana, plant that produces the Civic compact, and will hire 300 workers later this year.
Yesterday’s report showed a decline in long-term unemployment. The number of people out of work for 27 weeks or more decreased as a percentage of all jobless, to 40.7 percent, from 41.9 percent.
Some companies are cutting back. Cisco Systems Inc. (CSCO), the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.
Financial firms are also trimming jobs as revenue softens. Morgan Stanley (MS) said its headcount will drop by about 700 in the second half, bringing total 2012 reductions to 4,000. Credit Suisse Group AG will eliminate 138 positions in New York starting this month. Deutsche Bank AG will cut about 1,900 jobs by year-end, mostly outside Germany. The lender is also shrinking compensation and benefits.
Charlie Jones, a Washington resident, has been out of work for more than a year. He says he is relying on food stamps for meals while his girlfriend pays the rent. He signed up with a temporary agency for jobs in office installation and is searching actively for other openings.
“It’s a very tough job market,” said Jones, 35. “It’s discouraging. I keep waiting but they haven’t called me in a long time. I have a friend like me who recently got work, so I think hopefully something should turn up for me.”
The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force.
The jobless rate is derived from a survey of about 60,000 households that is conducted by the Census Bureau. The change in payroll employment is calculated from a Labor Department survey of almost 500,000 worksites.
The jobs figures provided Republican presidential candidate Mitt Romney a fresh chance to highlight discontent over the economy even as President Barack Obama sought to pre-empt him with a swing-state ad campaign attacking the challenger’s tax plan.
The “increase in the unemployment rate is a hammer blow to struggling middle-class families,” Romney said in a statement released by his campaign yesterday.
Alan Krueger, chairman of the White House Council of Economic Advisers, used the report to renew the administration’s call for lawmakers to extend tax cuts for Americans earning less than $250,000 a year and act on Obama’s proposals for spending on infrastructure.
The economy is “continuing to heal from the very deep wounds” of the recession, Krueger said yesterday in a Bloomberg Television interview. Still, “the unemployment rate is too high.”
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 -- increased to 15 percent from 14.9 percent.
Fed officials, after meeting this week, left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014. They said unemployment “remains elevated.”
Policy makers “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” the Fed statement said.
The employment report probably doesn’t change the outlook for further easing by Fed policy makers at their next meeting on Sept. 12-13, UBS’ Matus said.
“It’s not good enough to take the Fed off the table, but it’s not bad enough for anyone to say definitively the Fed is going to move in September,” he said in a telephone interview.
Monthly payroll growth of about 100,000 is needed to keep the jobless rate stable, while growth of roughly 150,000 to 200,000 is needed to lower unemployment, Fed Chairman Ben S. Bernanke said at a news conference in April, citing a “very rough estimate.”
Gross domestic product grew at 1.5 percent annual rate in the second quarter after a 2 percent gain in the first three months of the year, according to figures from the Commerce Department. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.
The so-called fiscal cliff, in which taxes will rise and government agencies will reduce spending next year if Congress doesn’t act, raises the risk of more cutbacks. Lockheed Martin Corp. (LMT), the world’s largest defense contractor, may have to dismiss about 10,000 of its 120,000 employees if lawmakers don’t act before $1.2 trillion in across-the-board cuts to federal spending, according to Robert Stevens, the Bethesda, Maryland- based company’s chief executive officer.
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