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Strong U.S. Jobs Growth Bodes Well for Economy

Reuters
Friday, 6 Jul 2007 | 11:59 AM ET

U.S. employers added 132,000 jobs in June and payrolls rose more strongly than previously thought in April and May, according to a Labor Department report that underlined a strengthening job market.

Wages also grew and the work week lengthened while the national unemployment rate remained steady at a relatively low 4.5%, bolstering an impression that the economy was bouncing back from a lull at the start of the year.

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"It is beginning to look as if the early-year economic malaise was really just the pause that refreshed," said economist Joel Naroff of Naroff Economic Advisors Inc. in Holland, Pennsylvania.

The report provoked strong reaction in financial markets, driving U.S. Treasury debt prices down as investors saw it as another in a string of recent indicators the economy was adding steam at a pace that meant the Federal Reserve will not cut interest rates this year.

The economy edged ahead at a 0.7% annual rate in the first three months of this year but some analysts predict it will accelerate to a rate exceeding three percent in the second quarter. The first measure of growth in second-quarter gross domestic product will not be available until July 27.

Stock prices initially slumped on the healthy hiring news, fearing it could foretell heightened inflation risks that could hasten interest-rate rises. But more hiring implies a growing economy and by mid-morning stock prices were slightly higher.

Strong, but Not Sizzling

June hiring topped forecasts for 120,000 new jobs made by Wall Street economists surveyed by Reuters.

As well, the government said 75,000 more jobs than previously thought were created in April and May -- completing a brisk pace of hiring throughout the second quarter.

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Earlier this week, the Institute for Supply Management separately reported that both the manufacturing sector and services added strength in June, a broad-based pickup that implied the expansion was adding momentum.

The Labor Department revised its estimate for May job growth up to 190,000 from a previously reported 157,000 and said there were 122,000 new jobs in April instead of the 80,000 it previously estimated.

While solid, the second-quarter hiring rate was not sizzling and analysts said it was unlikely to spur Fed action unless it appeared a hiring squeeze might be developing.

"From the Fed's point of view, it's still steady as she goes," said economist Stuart Hoffman of PNC Financial Services in Pittsburgh. "The Fed is not going to be any less concerned about inflation but it is not going to be more concerned about it either. It's a 5.25% federal funds rate as far as the eye can see."

All the hiring came in service industries during June.

There were 135,000 new jobs in the service sector including in health services, hospitality businesses and government.

The goods-producing sector shed 3,000 jobs. There were 18,000 fewer jobs in manufacturing businesses in June, on topof 7,000 lost in May.

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