American employers this year are hiring at the strongest pace in 14 years, boosting confidence that the U.S. economy is at last poised to make the Great Recession a distant memory.
The Dow Jones Industrial Average closed above 17,000 for the first time Thursday after the Labour Department’s latest hiring survey showed companies added 288,000 jobs in June, far exceeding the expectations of most Wall Street analysts. The Labour Department also added 22,000 to its tally of new jobs in April, taking the total to 304,000, which now stands as the strongest monthly gain since January, 2012.
America’s economy now has found jobs for 1.4 million people since the start of the year, the strongest six-month total since the second half of 1999. That’s the kind of consistently strong hiring that has eluded the United States since the worst of the financial crisis ended in 2009. The evident momentum will allow the Federal Reserve to proceed with its plan to end its extraordinary bond-buying program later this year. The economy even could pick up speed as the newly hired start spending their paycheques.
“This development will continue to support the purchasing power of households and help offset the drag due to higher prices for energy and food,” said Stéfane Marion, chief economist at National Bank Financial, who used to study the U.S. labour market at the Canadian Finance Department.
Wall Street’s enthusiasm for the latest hiring figures showed up in higher equity prices and a jump in the value of the U.S. dollar, along with a steady stream of allusions to the fireworks that will accompany Friday’s July Fourth celebrations. The Standard & Poor’s 500 Index, another closely watched gauge of U.S. equity prices, also climbed to a new record.
Surveys of analysts taken before Thursday’s report showed the consensus was for a non-farm payrolls reading of about 215,000 and for the unemployment rate to remain unchanged at 6.3 per cent. The jobless rate actually dropped to 6.1 per cent, the lowest since August and September of 2008, when the unemployment rate also was 6.1 per cent. When the Fed’s policy committee revised its economic outlook last month, it said it didn’t anticipate the unemployment rate dropping to its current level until the end of the year.
The jobless rate has proved a poor guide over the past couple of years because its decline had more to do with a shrinking pool of job seekers than increasing numbers of employed people. That wasn’t the case in June, as 407,000 people told the Labour Department they had found jobs, while the number of unemployed declined by 325,000.
“The June employment report was without question the most comprehensively constructive jobs report this cycle,” Tom Porcelli, New York-based chief U.S. economist at RBC Dominion Securities, said in a note to the bank’s clients.
Mr. Porcelli and other economists were impressed by the breadth of the hiring, as almost every major industry posted gains. Employment in professional and business services increased by 67,000, well ahead of its 12-month average of 53,000. Retailers and restaurants also added workers at impressive clips. Factories increased their payrolls by 16,000.
The strength inherent in the latest jobs figures is further evidence that the first-quarter economic contraction was an anomaly induced by severe weather in an unusually large number of places unused to ice and snow. Mr. Marion and other forecasters predict growth at annual rates of at least 3 per cent in the months ahead.
Evidence that the U.S. economy appears to have found its feet will strengthen the opinion of a vocal minority that argues the Fed is winding down its stimulus measures too slowly. While the Fed plans to stop creating money to buy bonds by the end of the year, Janet Yellen, the chair, has made clear that the central bank will still leave its benchmark rate pinned at zero well into 2015.
There is lots of evidence that the economy still has a ways to go before it is back at full health. Wages are growing at a relatively tepid annual rate of about 2 per cent, which will restrain consumption – and reduce any anxiety the Fed may have about an outbreak of inflation. The number of people who are working part-time and said they would prefer full-time work grew in June, indicating slack in the economy.