U.S. Employers Added More Workers in June Than Forecast

Employment roared ahead in June, indicating the U.S. economy is poised for faster growth as it shakes off the impact of tax increases and budget cuts.

Payrolls rose by 195,000 workers for a second month, the Labor Department reported today in Washington, exceeding the 165,000 gain projected by economists in a Bloomberg survey. The jobless rate stayed at 7.6 percent, close to a four-year low.

Hourly earnings in the year ended in June advanced by the most since July 2011, giving Americans already buoyed by higher home prices more reason to boost household spending, which accounts for 70 percent of the economy. Stocks climbed, while the yield on 10-year Treasuries rose to the highest in almost two years on expectations the Federal Reserve will start trimming $85 billion in monthly bond purchases in September.

“Job growth is starting to hum along,” said Jonathan Basile, director of U.S. economics at Credit Suisse Holdings USA in New York. “All of it is laying the groundwork for more spending and more jobs. This virtuous cycle is really taking hold for the second half of the year.”

The Standard & Poor’s 500 Index rose 1 percent to 1,631.89 at the close of trading in New York. The 10-year Treasury note yield increased 23 basis points, or 0.23 percentage point, to 2.73 percent at 4:09 p.m., the highest since Aug. 1, 2011.

Private Employment

Revisions added 70,000 jobs to the employment counts in April and May. Gains in private employment overcame declines in government payrolls. Private payrolls increased 202,000 in June after a 207,000 gain the prior month.

Retailers, professional and business services, health care, and leisure and hospitality businesses led the gains in June.

The improving labor market is encouraging some people to switch jobs. Among them is Brian Lambert, 44, who last month joined Red Robin Gourmet Burgers Inc., a chain based in Greenwood Village, Colorado, as director of loyalty programs.

“There seem to be a lot of jobs available, it’s just a matter of finding the right job,” he said. “And then when you do, competition is fierce.”

Factories reduced payrolls by 6,000 in June, while construction companies added 13,000, the most in three months, today’s report showed. Automakers boosted employment by 5,100 workers, the most in four months.

Hiring at auto dealerships and home-improvement outlets boosted retail payrolls.

Aging Vehicles

New cars and trucks sold in June at the fastest pace since 2007 as American drivers replaced aging vehicles and a rebound in housing construction moved trucks off dealer lots. That helped new car sales beat estimates last month, giving a lift to General Motors Co. and Ford Motor Co. Brisk sales are boosting hiring at dealerships.

“We would take 10 sales people in a heartbeat,” said Don Hicks, owner of Shortline Auto Group in Aurora, Colorado, which employs about 150 people at four dealerships. “If they were available and trained, or trainable, we’d take another five or six technicians. It’s crazy trying to find people.”

Auto industry sales climbed to a 15.9 million annualized pace, exceeding the 15.5 million median estimate of economists surveyed by Bloomberg. That’s the best monthly pace since 16.1 million in November 2007 and compares to 14.3 million a year earlier, according to data from Ward’s Automotive Group.

“We’re a little island of prosperity,” Hicks said. “We’re leading the country out of recession.”

Budget Cuts

Other manufacturers aren’t doing as well as the recovery struggles against crosscurrents. Growth is being restrained by weakness overseas and federal budget cuts that began in March.

On the other hand, today’s report also showed average hourly earnings rose 0.4 percent to $24.01 in June from the prior month. They were up 2.2 percent over the past 12 months.

“The improvement in employment and the improvement in wages suggest aggregate incomes are rising quite nicely,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, who projected a 190,000 gain in payrolls. “This sets the stage for a stronger second-half outlook for consumption.”

The payroll gains give Fed Chairman Ben S. Bernanke more reason to start trimming the bond purchases intended to spur the economy and lower unemployment.

Bernanke said last month the central bank may start tapering this year, if the economy meets its forecasts, and end the purchases around the middle of next year. He said he expects the jobless rate to be around 7 percent when the Fed stops.

‘Taper Trail’

“These data likely keep the Fed on the taper trail,” Tony Crescenzi, executive vice president at Pacific Investment Management Co. in Newport Beach, California, said in an interview on Bloomberg Radio with Tom Keene.

The household survey, used to calculate the unemployment rate, showed that more people entered the labor force and most of them were able to find work. The jobless rate in April fell to 7.5 percent, the lowest since December 2008.

Today’s report offered some reasons for caution. The number of part-time workers rose for the fourth month, to almost 28.1 million, from 27.7 million in May.

“Part-time employment has gone up over the last year, which is fine, but it does suggest to me there’s a lot of hesitation hiring full-time workers,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Silvia said.

What’s more, the leisure industry, which includes hotels and restaurants, and retailers accounted for more than half the job gains. Those industries tend to hire lower-paid workers.

Discouraged Workers

The underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking -- rose to a four-month high of 14.3 percent in June from 13.8 percent the month before. The advance reflected increases in the number of discouraged workers and in working less than a full day.

Courtney Herlihy, 27, district manager at BeStyled, a chain of beauty salons based in Needham, Massachusetts, said she’s looking to hire 60 to 90 people in the next year, including receptionists and managers. She’s getting resumes from people with years of experience in medicine and finance.

“A lot of those people who have management experience are not finding jobs, so they’re applying in the beauty industry,” she said. “They’re having a hard time getting jobs in their previous field.”

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