Job growth surged in June, capping the best first half since 1999, driving blue chip stocks to a record high and leading analysts to say the economy is shifting to higher gear.
Employers added a sizzling 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 index, composed of 30 major corporations, finished up 92.02 points to a record of 17,068.26.
The S&P 500 rose 10.82 points to 1985.44, itself approaching a record. The tech-heavy Nasdaq closed the day up 28.19 points to 4485.93.
The new jobs exceeded widespread expectations that the economy would add about 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.
“Businesses are finally getting their groove back and hiring more. This signals that the expansion is moving into a stronger phase,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “The job market has kicked into a higher gear. 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 by 1.4 percentage points and there are 2.3 million fewer unemployed people. The rate peaked at 10 percent in March 2009.
“Unemployment will soon blow through 6 percent, which will prompt a pickup in wage growth,” predicted Zandi. “Most people have jobs, and care most about how fast their pay is increasing. As wages improve, so too will consumer confidence and spending.”
Getting the jobless rate below 6 percent would cross an important psychological threshold. Unemployment was 4.7 percent to 6 percent for much of 2007 and early 2008, when the economy was humming right before the crisis.
The sharply falling unemployment rate puts the Federal Reserve in a bind. It keeps the Fed on pace to end its controversial purchases of government and mortgage bonds by year’s end, removing a stimulus.
But because the economy is heating up, it might force the Fed to choose between higher inflation and higher lending rates. The Fed has held its benchmark lending rate near zero since December 2008. But as the economy improves, inflation should pick up, and raising interest rates is how the Fed clamps down.
“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 start-up 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 jobs growth buried any 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,” noted Stuart Hoffman, the chief economist for PNC Financial in Pittsburgh. “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.”