us job creation solid in june but data shows weaknesses
Last Updated : GMT 14:49:45
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US job creation solid in June, but data shows weaknesses

Arab Today, arab today

Arab Today, arab today US job creation solid in June, but data shows weaknesses

US job creation
Washington - AFP

The US economy churned out a solid 223,000 net new jobs in June, the Labor Department said Thursday, but wages remained flat, underscoring continued weaknesses in the economy.

In a decidedly mixed report on the jobs market, the department said the unemployment rate fell to 5.3 percent, the lowest level since April 2008.

Yet that gain came more from people dropping out of the jobs market than from new hiring by companies and governments.

Data from the volatile household survey showed the labor force shrank by 432,000 people in the month, largely explaining the 0.2 percentage point fall in the jobless rate.

At the same time, job creation numbers for April and May from the more consistent establishment survey were reduced by a total of 60,000 positions.

And average hourly earnings were flat from May at $24.95, and up a modest 2.0 percent year-on-year, lower than what most analysts had been expecting after the steady hiring gains of the past year.

While the numbers did not undermine the general picture of steady, moderate growth in the economy, analysts said they were not strong enough to confirm that the Federal Reserve, as has been expected, will begin raising zero-level interest rates in the coming months.

"We believe this report keeps the Fed on track for tightening at the September meeting, but there will be two more employment reports between now and then," said Jim O'Sullivan of High Frequency economics.

Market response was mixed, with a long holiday weekend and the Greek bailout referendum also shaping reactions. The dollar was slightly higher against the euro at $1.1085, while US bond yields fell, the 10-year Treasury yield dropping to 2.39 percent from 2.45 percent.

US stocks ended slightly lower, with the S&P 500 slipping a bare 0.03 percent.

- Participation rate sinks -

Hiring in June was strongest in health care and business services, as has been the case over the past few years, but stalled in construction, the auto industry and government.

There was a drop in the number of long-term unemployed, by 381,000, but much of that could have been people giving up their job search and leaving the active workforce altogether.

Indeed, there was a fall in the labor force participation rate to 62.6 percent, the lowest level since 1977.

But against these points was the fact that the US economy has produced an average of 208,000 jobs each month so far this year.

"The trend in employment growth remains more than strong enough to keep the unemployment rate... trending down, which should eventually lead to more clear-cut acceleration in wages," said O'Sullivan.

Ian Shepherdson of Pantheon Macroeconomics said the mixed report does not negate the key issue for the Federal Reserve's monetary policy.

"What counts is the trend in unemployment, which continues to fall rapidly," he said.

At 5.3 percent, Shepherdson noted, the jobless rate is already inside the Federal Reserve's forecast for the end of this year, and he predicted that the job reports for the coming months will be stronger than in June.

"Policymakers are now set up nicely to tighten soon on the basis that the labor market is normalizing faster than they expected," he said.

Kim Chase at BBVA was more cautious, arguing that low inflation indicates continued weakness in wages, which the Fed wants to see rise.

"This dynamic of wage growth and inflation has certainly played an important role in holding back the first federal funds rate hike thus far," noted Chase.

"However, we expect that stronger components of the labor market will eventually help offset stubborn wage growth, and therefore we maintain our projections for the first rate hike in September 2015."

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