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U.S. adds 195,000 jobs in June

As the economy strengthens, experts say the Fed is more likely to start easing its stimulus efforts.

July 06, 2013|Don Lee and Alexei Koseff

WASHINGTON — Surprisingly resilient job growth over the last three months has raised the likelihood that the Federal Reserve will start pulling back its massive bond-buying stimulus this fall, but the near-term employment outlook may not be as bright as the latest numbers look.

The much-anticipated employment statistics for June showed that employers added 195,000 jobs over the month, despite analysts' expectations that federal spending cutbacks and the soft global economy would hold payroll growth to no more than 165,000. What's more, the Labor Department's report Friday revised substantially higher the job gains for May and April, bringing the number of new jobs to nearly 200,000 in those months as well.

The nation's jobless rate remained at 7.6% as more jobless workers, notably women, entered the labor force and offset the increase in employment. That may be a sign that more people are hopeful about their chances in the job market.

"It's like bricks off my shoulders," said Lis De Bats, a 54-year-old Agoura Hills resident who recently landed a job after a 15-month search. "So many people around you, as much as they love you, think you aren't trying hard enough. They don't know what it's like down in the trenches."

Yet even as these positive trends buoyed investors' spirits -- leading stock gauges rose about 1% on Friday -- a large share of the new jobs have come in lower-paying businesses. And it's far from clear that the recent pattern of overall job growth can hold up in the second half of this year.

One strong case that hiring will slow in coming months is that economic output -- that is, the total value of goods and services produced in the nation -- has been weak since last fall. And employment generally tracks economic growth with a lag.

"If we're hiring all these people, where is the output?" asked Bill Dunkelberg, chief economist for the National Federation of Independent Business. The federation's survey of small firms in June showed an overall decline in average employment over the last three months.

Macroeconomic Advisers, a major forecasting firm, sees smaller job growth over the rest of this year, also largely because of the recent sluggish economic output. Its latest projection has the economy expanding at an annualized rate of 1.3% in the just-completed second quarter, similar to the average of the prior two quarters.

Another "rationale for a sharp slowing in payroll gains in the second half of this year is that ... well ... it's already happened," the firm said in a report this week, adding that an upturn in the low productivity of late also would tamp down hiring.

Other experts are more bullish about future hiring. Some think economic growth will come in stronger than forecast. And some cite other reports suggesting that small employers, which have lagged in sales and job growth during this recovery, are beginning to bulk up staff.

There may be more start-ups under the radar juicing up the economy as well, analysts said, especially with the housing market coming back to life. The Obama administration's decision this week to delay until 2015 the employer mandate of the new healthcare law also could help employment; that provision requires employers with more than 50 full-time workers to provide health insurance or pay a fine.

"I think we actually start to pick up some speed from here," said Phil Orlando, chief equity strategist at the asset management firm Federated Investors, referring to hiring by small firms in particular.

Whatever their job forecasts, Orlando and most other economists agree the Fed will announce a tapering of its $85-billion-a-month bond-buying program as early as at its September policy meeting. The stimulus has helped hold down long-term interest rates, which have supported car and home purchases as well as spurred investment in stocks and other assets.

The Fed has said it will keep the bond-buying going until there is substantial improvement in the outlook for the job market, and Fed Chairman Ben S. Bernanke suggested it wouldn't be until the jobless rate dipped to about 7% that the program would be stopped. Nonetheless, Wall Street has been anxious about what might happen once the Fed pulls back some of its easy-money policies.

With the June data and upward revisions for the prior two months, job growth has averaged about 200,000 a month in the first half of this year -- up from about 180,000 last year. Although that's not a huge increase, the steady gain will instill greater confidence in the Fed that the economy is on surer footing.

So far, analysts have been pleasantly surprised by the relatively small hit to employment from the government spending cuts under the so-called sequestration, which took effect in March.

Federal payrolls dropped by 5,000 in June and are now down 65,000 from a year ago, although about a third of the annual loss is from cuts at the troubled postal service.

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