Surge in job growth pushes stocks to record high
07/03/2014 7:57 PM
07/03/2014 8:21 PM
Job growth surged in June, capping the best first half since 1999, driving blue chip stocks to a record high and leading many analysts to say the economy is shifting to a higher gear.
Employers added 288,000 jobs last month, the Labor Department said, pushing the unemployment rate down two-tenths of a percentage point to 6.1 percent, where it last was in September 2008.
Buoyed by the jobs report, blue chips raced past the 17,000 threshold at the open of trading and stayed there all day. Financial markets closed early for the Independence Day holiday, and the Dow Jones industrial average, composed of 30 major corporations, rose 92.02 to a record 17,068.26.
The broader S&P 500 and the tech-heavy Nasdaq index also were up.
The new jobs exceeded widespread expectations that the economy would add 200,000 jobs last month. Statisticians also increased May’s already strong preliminary jobs number by 7,000 to 224,000 and April’s number by 22,000 to 304,000.
June also was the fifth straight monthly job gain above 200,000 — the best such stretch since the late 1990s tech boom. In the past 12 months, the economy has added nearly 2.5 million jobs — an average of 208,000 a month, the fastest year-over-year pace since 2006.
The labor picture is still far from what it was before the recession, given high long-term unemployment, millions who have quit looking for work and stagnant wages.
But there was progress in June on one of those fronts as the number of people out of work for 27 weeks or longer declined as a percentage of all jobless to 32.8 percent, the lowest since June 2009. The number of long-term unemployed has dropped 1.2 million over the past year to just under 3.1 million. That’s half what it was three years ago.
And analysts saw some hope that wages would pick up soon.
“Unemployment will soon blow through 6 percent, which will prompt a pickup in wage growth,” predicted Mark Zandi, the chief economist for forecaster Moody’s Analytics. “Most people have jobs and care most about how fast their pay is increasing. As wages improve, so too will consumer confidence and spending.”
But the government data also suggest that many long-term unemployed have given up their job searches — a trend that could create a drag on future U.S. growth.
Another red flag was that the number of full-time workers dropped 523,000 in June, the first such decline since October, and the number of part-time workers rose by 799,000, which was the largest one-month gain since January 1994.
Stuart Hoffman, chief economist at PNC Financial Services Group, noted that the part-time numbers fluctuate, so one month’s results could be “statistical noise.” And he said that most of the part-time rise in June was not in those who want to find full-time work but couldn’t. Instead it was those who voluntarily opted to do so.
Still, most analysts said the good far outweighed the bad in the report.
“Businesses are finally getting their groove back and hiring more. This signals that the expansion is moving into a stronger phase,” Zandi said. “This month’s strong job gain overstates the case, but job growth is now double the pace necessary to reduce unemployment.”
Over the past 12 months, the unemployment rate has fallen 1.4 percentage points and there are 2.3 million fewer unemployed people. The rate peaked at 10 percent in March 2009.
Getting the jobless rate below 6 percent would cross an important psychological threshold. Unemployment was 4.7 to 6 percent for much of 2007 and early 2008, when the economy was humming right before the crisis.
The falling unemployment rate keeps the Federal Reserve on track to end its purchases of government and mortgage bonds by year’s end, removing a stimulus. But it also raises the question of when the Fed will raise short-term interest rates.
“Prior to this report, both positive and negative arguments could be made for the health of the labor market. Of course, the stronger the positive arguments are, the greater the likelihood of an end to the Fed’s near zero interest rate policies,” said Doug Handler, a U.S. economist for forecaster IHS Global Insight. “We see this report as a new, solid piece of evidence that the labor market is in good shape and is improving.”
President Barack Obama celebrated the news.
“We’ve now seen the fastest job growth in the United States in the first half of the year since 1999. So this is also the first time we’ve seen five consecutive months of job growth over 200,000 since 1999,” Obama said during a tour of a startup company in the nation’s capital. “And we’ve seen the quickest drop in unemployment in 30 years. So it gives you a sense that the economy has built momentum, that we are making progress.”
The job growth also dispelled some doubts raised by the 2.9 percent economic contraction from January to June, caused partly by an unusually harsh winter.
“During the first six months of 2014, the labor force rose by 757,000 while household employment jumped by a much bigger 1.64 million,” Hoffman noted. “The solid rise in the number of job seekers thus far this year is a sign of growing confidence in the economy on the part of employers and would-be employees.”
All sectors posted gains in Friday’s report. Retailers created more than 40,000 jobs last month, and the broad sector of leisure and hospitality added almost as much, with 39,000 new posts.
The professional and business services sector, composed of better-paying white-collar jobs, led all others with 67,000 new posts. The financial sector added 17,000 posts, and health care hiring remained sluggish but rose by 21,000.
Hiring was uneven within the manufacturing sector, which added 16,000 jobs.
“The gains in the manufacturing sector were mainly in the durable goods sector, with over half of that figure stemming from transportation,” cautioned Chad Moutray, the chief economist for the National Association of Manufacturers. “Ideally, we would like to see consistent job growth of at least 15,000 to 20,000 each month, with hiring coming from a broader spectrum of the industry.”
Bloomberg and The Associated Press contributed to this report.