June hiring surge suggests rebounding U.S. economy

Keywords Economy / Unemployment
  • Comments
  • Print

Employers shook off two months of weak hiring by adding 287,000 jobs in June, a robust pace that suggests a resilient U.S. economy recovering from a slump early in the year.

The hiring spurt marked a sharp improvement from May's dismal showing, when only 11,000 jobs were added, and April's modest gain of 144,000.

The unemployment rate rose in June from 4.7 percent to a still-low 4.9 percent. But the uptick occurred mainly for an encouraging reason: More Americans began seeking jobs—a sign of growing confidence in their prospects—though many didn't immediately find work.

The broadly positive jobs report suggests that the U.S. economy was improving before the United Kingdom startled the world late last month by voting to leave the European Union. The "Brexit" vote roiled financial markets and raised fears that the global economy would slump and possibly even succumb to a recession.

The job growth will also raise hopes that the U.S. economy, which has repeatedly defied overseas weakness before, may be able to further strengthen even as the rest of the world slows.

Stock futures rose sharply after the jobs report was issued at 8:30 a.m., reflecting a belief that the U.S. economy remains resilient.

"This is clearly positive news after the worrying slowdown in previous months," Andrew Hunter, assistant economist at Capital Economics, wrote in a research note.

Average hourly pay, a chronic weak spot in the seven-year U.S. recovery from the Great Recession, rose in June. Over the past 12 months, average wages are up 2.6 percent—the best year-over-year gain since December, though still below the longstanding pace of about 3.5 percent.

Friday's report provided other evidence of an improving job market: The number of part-time workers who would prefer full-time jobs fell sharply, reversing an increase in May.

Hiring was widespread across both higher and lower-paying sectors. Manufacturers added 14,000 jobs, the most since January. Professional and business services, a category that includes accountants, engineers and architects as well as temporary workers, gained 38,000. Retailers added nearly 30,000 workers, health care over 58,000.

Even with June's big gain, job growth for the full year remains subpar. Employers added an average of 147,000 jobs a month in the April-June quarter, down from 230,000 last year.

The recent hiring slump had come after the economy grew at a tepid 1.1 percent annual rate in the first three months of the year. Americans' spending rose at the slowest pace in two years during that time—a significant drag given that consumer spending drives around 70 percent of the economy.

Concerns about the global economy have deepened since the U.K.'s Brexit vote. The yield on the 10-year U.S. Treasury note this week touched a record low of 1.34 percent. Such a decline has historically signaled anemic growth and even an outright recession. When investors fear for the future and seek safe returns for their money, they typically shift into Treasurys. That flow of money forces down yields.

The hiring slowdown caught Federal Reserve officials off guard. They cited the weak jobs figures during their June meeting as a key reason for putting off any further rate increases.

That sentiment signaled a shift from their April meeting, when many Fed policymakers had indicated that they were prepared to raise rates as soon as June if the job market and the economy continued to improve.

"Today's report helps the case for more Fed tightening before too long—if strength is sustained—although officials are being ultra-cautious amidst turmoil in global markets," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research report.

Most recent economic data had pointed to an improvement from the sluggish start to the year, though all of it pre-dated the Brexit vote. Americans, for example, ramped up their spending in April and May, and measures of consumer confidence also grew. The stronger spending led economists to forecast that annualized growth rebounded to 2 percent or more in the April-June quarter.

Manufacturing companies expanded in June at their fastest pace since November, according to a survey by the Institute for Supply Management, a trade group. Services companies, including retailers and banks, also grew at a faster pace in June, the ISM found.

And home sales have marched upward this year despite a low supply of houses for sale. Sales of existing homes reached a nine-year high in May.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.