U.S. Economy Adds 196,000 Jobs

CHRISTOPHER S. RUGABER

WASHINGTON (AP) – U.S. employers are sending a message of confidence in the economy – hiring more workers, raising pay and making the job market appear strong enough for the Federal Reserve to slow its bond purchases as early as September.

The economy gained a robust 195,000 jobs in June and many more in April and May than previously thought. The unemployment rate remained 7.6 percent in June because more people started looking for jobs – a healthy sign – and some didn’t find them. The government doesn’t count people as unemployed unless they’re looking for work.

The Labor Department’s report Friday pointed to a U.S. job market that’s showing surprising resilience in the face of tax increases, federal spending cuts and economic weakness overseas. Employers have added an average 202,000 jobs for the past six months, up from 180,000 in the previous six.

The job growth is being fueled in part by consumer spending and the housing recovery. Consumer confidence has reached a 5½ year high and is helping drive up sales of homes and cars. Hiring was especially strong in June among retailers, hotels, restaurants, construction companies and financial services firms.

“The numbers that we’re seeing are more sustainable than we thought,” said Paul Edelstein, U.S. economist at IHS Global Insight, a forecasting firm. “We’re seeing better job numbers, the stock market is increasing and home prices are rising.”

Average pay also rose sharply last month. It’s exceeded inflation this year after barely keeping pace since the Great Recession ended four years ago. Average hourly pay rose 10 cents in June to $24.01. Over the past 12 months, it’s risen 2.2 percent. Over the same period, consumer prices have increased 1.4 percent.

Stocks closed sharply higher Friday. The Dow Jones industrial average surged 147 points, nearly 1 percent. The yield on the 10-year Treasury note jumped from 2.56 percent to 2.73 percent, its highest level since August 2011. That’s a sign that investors think the economy is improving.

Among the employers benefiting from Americans’ continued willingness to spend is Carlisle Wide Plank Floors, based in Stoddard, N.H. Carlisle makes hardwood flooring used in stores, restaurants and hotels. CEO Michael Stanek said orders jumped 30 percent in the first quarter compared with a year earlier.

The company is hiring factory, sales and administrative employees to meet the higher demand. Carlisle expects to add about 15 employees this year to its 85-person workforce.

Friday’s report showed that the U.S. economy added 70,000 more jobs in April and May than the government had previously estimated – 50,000 in April and 20,000 in May.

Further job growth could lower unemployment and help the economy rebound after a weak start this year. If so, the Fed would likely scale back its bond purchases later this year.

The Fed has been buying $85 billion in Treasury and mortgage bonds each month since late last year. The purchases pushed long-term interest rates to historic lows, fueled a stock rally and encouraged consumers and businesses to borrow and spend. The low rates have helped support an economy that’s had to absorb government spending cuts and a Social Security tax increase that’s shrunk paychecks this year.

John Silvia, chief economist at Wells Fargo, said he thinks the Fed will announce at its September policy meeting that it will start reducing its bond purchases, perhaps to $75 billion a month.

Chairman Ben Bernanke has said the Fed’s bond buying could end around the time unemployment reaches 7 percent. The Fed foresees that happening around mid-2014. But Silvia said he didn’t think unemployment would reach 7 percent by then. He thinks the Fed could continue its bond buying into 2015.

Friday’s report contained at least one element of concern: Many of the job gains were in generally lower-paying industries, a trend that emerged earlier this year. The hotels, restaurants and entertainment industry added 75,000 jobs in June. This industry has added an average 55,000 jobs a month this year, nearly double its average in 2012. Retailers added 37,000. Temporary jobs rose 10,000.

The health care industry added 20,000 jobs, construction 13,000. But manufacturing, which includes many higher-paying positions, shed 6,000. The manufacturing sector has weakened this year.

Many of the new jobs are only part time. The number of Americans who said they were working part time but would prefer full-time work jumped 322,000 to 8.2 million – the most in eight months.

That could be a sign that some employers are hiring more part-time workers to avoid the health care reform law’s requirement that companies provide health coverage to full-time staff. That mandate was to take effect Jan. 1. But this week, the Obama administration postponed it until 2015.

The rise in part-time jobs helped boost one measure of weakness in the job market – the so-called underemployment rate. This includes not only the unemployed but also people with part-time jobs who want full-time work and people who have stopped looking for work.

In June, the underemployment rate rose from 13.8 percent to 14.3 percent. That’s still down from 14.8 percent a year ago. The rate peaked at 17.1 percent in April 2010.

Jobs have been added at a faster pace this year than the economy’s sluggish growth would suggest. The economy expanded at only a 1.8 percent annual rate in the first three months of the year. Most analysts think it grew even more slowly in the April-June quarter.

But later this month, the government will revise its estimate of the economy’s growth for the first quarter, and many analysts think it will be revised up. They also think the economy will accelerate in the second half of the year.

Last month’s job growth came solely from the private sector, particularly services firms. Government jobs fell 7,000, mostly at the federal level. The federal government has shed 65,000 jobs in the past 12 months. Some of that decline is due to the spending cuts that kicked in March 1.

Declining government employment has been a drag on the job market since the recession officially ended in June 2009. In a typical recovery, governments add at least 20,000 jobs a month.

Solid hiring in the private sector is lifting wages, even in some lower-paying industries. Average hourly pay for retail employees, for example, rose 6 cents in June to $16.64, and is up nearly 2 percent in the past year.

The overall increase in pay is “the standout feature of this report,” said Ryan Sweet, an economist at Moody’s Analytics. Low inflation rate is also helping consumers, he noted.

“The tide is continuing to turn for the consumer,” Sweet said. “The consumer is going to continue to be able to shoulder this recovery.”

June’s 7.6 percent unemployment rate is derived from a survey of households, which found that 177,000 more people started looking for jobs last month. Most found them. The rise in job seekers suggests that Americans think their prospects have brightened. Because some job seekers didn’t find work right away, the number of unemployed was largely unchanged at 11.8 million.

The job gain for the month is calculated from a separate survey of employers.

The percentage of Americans either working or actively looking for work rose for a second straight month to 63.5 percent. This is called the “labor force participation rate.” The participation rate has been generally declining since peaking at 67.3 percent in 2000. That’s partly the result of baby boomers retiring and leaving the workforce.

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AP Business Writer Martin Crutsinger contributed to this report.