Job Market Sees Big Gains for June

By CBS News

Published 07/03 2014 07:55AM

Updated 07/03 2014 05:47PM

CBS Marketwatch -- Employers added 288,000 nonfarm jobs in June, the U.S. Labor Department said Thursday, topping consensus estimates of 215,000 and raising hopes that the recovery is gaining momentum heading into the second half of the year. Payroll gains in April and May were also healthier than initially estimated, with the economy adding 29,000 more jobs than previously reported.

The nation's unemployment rate fell from 6.3 percent to 6.1 percent, the lowest rate of joblessness since September 2008.

It has been a tale of two economies this year. Growth fell through the floor in the first three months of 2014, when annualized GDP shrank 2.9 percent following harsh winter weather and a slowdown in how quickly businesses were adding to their stockpiles. That cold snap, which stalled construction projects, delayed housing purchases and hampered consumer spending, hurt the economy more than many forecasters had expected.

Wage growth, which powers consumer spending, also remains subdued at an annualized rate of roughly 2 percent. Median U.S. annual household income in May was $53,385, according to Sentier Research. That is only 3.3 percent higher than the low-point in income reached in August of 2011, underscoring the slow rebound in workers' pay following the Great Recession.

Economic gains have also been distributed unevenly across the U.S., with many states still struggling to climb out of the crater caused by the housing crash. Unemployment around the country ranges from more than 10 percent in some areas to less than 5 percent in others, federal data show. For the more than 3 million long-term unemployed, meanwhile, finding a job remains tough.

Given the plunge in first-quarter growth, the Federal Reserve in June downgraded its growth outlook for all of 2014 to between 2.1 percent and 2.3, down from a previous estimate of 2.8 percent to 3 percent. Forecasters have been forced to follow suit, ratcheting back their expectations for the year.

At the same time, the labor market has picked up. The economy has now added at least 200,000 jobs for five straight months, the longest streak of gains reaching that threshold since early 2000. Job-creation is widespread, the latest employment report shows, led by increases in professional and business services, retail, restaurant, and health care companies.

Encouragingly, more small businesses also have begun hiring, a key engine for job growth since such firms account for as much as two-thirds of new hiring. The National Federation of Independent Business said Wednesday that job-creation levels for smaller companies are now approaching normal levels. Ian Shepherdson, chief economist with Pantheon Macroeconomics, also notes that a growing number of small firms are struggling to fill open positions. That points to sharper wage gains ahead.

"The labor market recovery appears to be firing on all cylinders and is finally self-sustaining," Stuart Hoffman, chief economist with PNC Financial Services Group, said in a research note ahead of the latest jobs report.

The Federal Reserve expects unemployment to fall to around 6 percent by year's end.

The broader economy also has steadied, driven by strong car sales, vigorous home sales and manufacturing growth. Most economists now expect growth in the second quarter to run between 3 percent and 3.5 percent. And despite concerns about higher food and gas prices, consumer confidence has rebounded after dipping earlier in the year.

With the labor market improving, the Fed is expected to continue weaning the economy off the monetary stimulus it has used to keep a lid on interest rates and boost stock prices.

A recent uptick in inflation, along with a steady drop in the jobless rate, is even spurring talk that the central bank could start hiking interest rates in the first quarter of 2015, rather than later in the year as many had previously expected.

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