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Beware misleading U.S. job-creation stats

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U.S. job creation is looking stronger than it really is. The average of 202,000 new positions a month in 2013 is the best first half since 2005, after Friday's report for June showed a better-than-expected 195,000 new positions. But the jobless rate is stuck at 7.6 per cent as more Americans gradually look for work. While the Federal Reserve has to start reversing its easy money policy sometime, employment is still far from strong enough to force its hand.

The consistency of the new jobs added to the U.S. economy so far this year has been impressive, particularly for a relatively weak recovery that has in recent years lost its way each spring. Even industries hard-hit by the recession like construction and finance appear to be getting back on their feet. These sectors added 13,000 and 17,000 jobs, respectively, in June.

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But these new jobs aren't cutting the unemployment rate. That's due mostly to more people looking for jobs. The labor force has increased by 800,000 over the past three months with participation in the workforce starting to rise again. Although still low, the 63.5 per cent participation rate reported for June was 0.2 percentage point better than in March.

Yet digging a little deeper casts doubt on the strength of the job market's improvement. In June alone, the United States added 360,000 part-time jobs and cut 240,000 full-time jobs. The broadest measure of unemployment, the so-called U6 rate that includes those marginally attached to the workforce or working part-time for economic reasons, jumped to 14.3 per cent from 13.8 per cent in May.

To confuse matters further, these mixed jobs figures come as economic growth is stuttering. Economists on average expect second-quarter GDP growth to be an anemic 1 per cent, on top of an already subpar 1.8 per cent in the first quarter. If these ambiguous trends continue, a Fed decision to slow the flow of easy money could become harder to make, not easier.

Chairman Ben Bernanke's willingness to discuss the Fed's exit timing in his press conference last month may have been too hasty. His words spooked investors, pushing up long-term interest rates and slashing gold prices. More of that happened after Friday's jobs report. But the Fed isn't likely to pull back very aggressively in the face of stubborn unemployment and weak growth. Market hand-wringing may be premature.

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