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July 5, 2013

US economy adds 195,000 jobs; unemployment 7.6 percent

WASHINGTON — U.S. employers added a robust 195,000 jobs in June and many more in April and May than previously thought. The job growth suggests a stronger economy and makes it more likely the Federal Reserve will slow its bond purchases before year’s end.

The unemployment rate remained 7.6 percent because more people started looking for jobs — a healthy sign — and some didn’t find them. The government doesn’t count people as unemployed unless they’re looking for work.

Still, hiring “continues to look more than strong enough to keep unemployment trending down ... and probably more than strong enough to lead to Fed tapering starting in September,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

The Fed’s bond purchases have kept borrowing rates low to encourage borrowing and spending. A pullback in its bond buying would likely send rates up.

Pay also rose sharply last month and is outpacing inflation, the Labor Department’s monthly jobs report Friday showed. Average hourly pay rose 10 cents in June to $24.01. Over the past 12 months, it’s risen 2.2 percent. Over the same period, consumer prices have increased 1.4 percent.

Stocks opened sharply higher before erasing most of their gains by late morning. And the yield on the 10-year Treasury note jumped from 2.56 percent to 2.7 percent, its highest level since August 2011. That’s a sign that investors think the economy is improving.

The economy has added an average 202,000 jobs a month for the past six months, up from 180,000 in the previous six. Hiring and consumer confidence have risen despite higher taxes and federal spending cuts that kicked in this year.

Friday’s report showed the economy added 70,000 more jobs in April and May than the government had previously estimated — 50,000 in April and 20,000 in May. Average hourly pay rose 10 cents to $24.01, 2.2 percent higher than a year ago.

The hotels, restaurants and entertainment industry added 75,000 jobs in June. Retailers added 37,000.

The health care industry added 20,000, construction 13,000. Temporary jobs rose 10,000. But manufacturing shed 6,000.

Many of the new jobs were part time. The number of Americans who said they were working part time but would prefer full-time work jumped 322,000 to 8.2 million — the most in eight months.

The unemployment rate is derived from a survey of households, which found that 177,000 more people started looking for jobs in June. Most found them. The increase suggests that Americans think their job prospects have brightened.

But because some of the job seekers didn’t find work right away, the number of unemployed was largely unchanged at 11.8 million.

The 195,000 job gain for June is calculated from a separate survey of employers.

The percentage of Americans either working or actively looking for work rose for a second straight month to 63.5 percent. This is known as the “labor force participation rate.” The participation rate has been generally declining since peaking at 67.3 percent in 2000. That’s partly the result of baby boomers retiring and leaving the workforce.

Despite the solid pace of hiring in June, the economy is growing only sluggishly. It expanded at a 1.8 percent annual rate in the January-March quarter. Most analysts expect growth at roughly the same subpar rate in the April-June quarter.

Weak economies overseas cut demand for U.S. exports in May. That led some economists to predict that growth in the second quarter might be slower than forecast.

Still, many areas of the economy are improving. The Fed’s low-rate policies have led more Americans to buy homes and cars. They also helped boost stock and home prices in the first half of the year, increasing wealth and lifting consumers’ confidence to its highest level in 5 1/2 years.

Auto sales in the January-June period topped 7.8 million, their best first half since 2007, according to Autodata Corp. and Ward’s AutoInfoBank. Sales of previously occupied homes exceeded 5 million in May, the first time that’s happened since November 2009. New-home sales rose at their fastest pace in five years.

Though fewer exports have hurt manufacturing, factories fielded more orders in May. And a measure of business investment rose for a third straight month.

Diane Swonk, chief economist at Mesirow Financial, said she thinks the improving job market will lead the Fed to taper its monthly bond purchases starting in September from $85 billion to $65 billion. She predicts the Fed will reduce its monthly purchases by an additional $20 billion in December.

Swonk said she thinks the Fed will end its bond buying altogether in the second half of 2014.

———

AP Business Writer Martin Crutsinger contributed to this report.

 

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