ECONOMY

Job growth sparks market

288,000 workers hired in June; Dow cracks the 17,000 threshold.

By Kevin G. Hall MCCLATCHY NEWSPAPERS

WASHINGTON — Job growth surged in June, capping the best first half since 1999, driving blue-chip stocks to a record high and prompting analysts to say the economy is shifting to a higher gear.

Employers added 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, the Dow Jones industrial average 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, with the Dow finishing up 92.02 points to a record of 17,068.26.

The new jobs exceeded economists’ 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.

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.

Despite the encouraging numbers, economists saw some room for improvement.

The labor market remains weak, with a labor force participation rate stuck at 62.8 percent, the lowest since 1978.

Moreover, hiring has tended to be predominantly in low-wage jobs, leading to stagnant wage growth, and the number of hours worked per week has not changed. “The headline number masks the lingering structural weakness in the U.S. labor market,” said Lindsey Piegza, a chief economist at the Sterne Agee brokerage house.

Even President Barack Obama, who would be eager to take credit for an economy on the mend, felt compelled to throw in a dampening caveat as he drew attention to Thursday’s numbers.

“As much progress as has been made, there are still folks out there who are struggling,” he said. “We still have not seen as much increase in income and wages as we’d like to see. A lot of folks are still digging themselves out of challenges that arose out of the Great Recession.”

And public perceptions of the economy remain pessimistic.

An Associated Press-GfK poll in May found that the share of those surveyed who called the economy “good” stood at 34 percent, while 65 percent described it as poor. That’s about the same as it has been all year, though slightly above where it was during the partial government shutdown in October. Few expected improvement in the economy over the next 12 months, and more expected it to get worse.

The sharply falling unemployment rate also creates a challenge for the Federal Reserve. 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. 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.

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.”

THE ASSOCIATED PRESS

CONTRIBUTED TO THIS ARTICLE.