July 3, 2013

Reports point to solid U.S. hiring in June

The Associated Press

WASHINGTON — U.S. companies stepped up hiring last month, a private survey showed Wednesday. And the government says fewer people applied for unemployment benefits last week.

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A job seeker stops at a table offering resume critiques during a job fair in Atlanta in May.

2013 Associated Press File Photo

The latest data point to steady job growth, an encouraging sign ahead of Friday's government report on June employment. The brighter hiring outlook also helped stocks end the day higher. The Dow Jones industrial average closed up 56 points.

Further job gains could lower the unemployment rate, which is still high at 7.6 percent, and help economic growth rebound in the second half of the year. If growth accelerated and unemployment fell, the Federal Reserve might start to scale back its bond purchases before the year ends.

"The labor market remains one of the healthiest parts of the economy right now," Ethan Harris, global economist at Bank of America Merrill Lynch, said.

Economists forecast that the June jobs report will show employers added 165,000 jobs. That's roughly in line with the average of 175,000 jobs a month the economy has gained in the past 12 months. The unemployment rate is expected to remain 7.6 percent. That's down from 8.2 percent a year ago.

Wednesday's reports had some economists suggesting that the June job gains could be higher than forecast.

Payroll provider ADP said businesses added 188,000 jobs in June, up from 134,000 in May and the most since February. Construction firms added 21,000 jobs, a sign the housing recovery is boosting hiring. Small businesses — those with less than 50 employees — added 84,000 jobs.

ADP's survey has frequently diverged from the government's figures. In three out of the past four months, it has been lower than the official figures. That could be a sign that Friday's figure will be much higher than forecast. But it could also simply mean that ADP's figures are "catching up" with gains reported by the Labor Department in the previous months.

The number of Americans applying for unemployment benefits fell 5,000 to a seasonally adjusted 343,000 last week, the Labor Department said in a second report. The less volatile four-week average dipped 750 to 345,500 and is 9 percent lower than a year ago.

Weekly applications for unemployment benefits are a proxy for layoffs. The current level is consistent modest but steady hiring gains.

A third report from the Institute for Supply Management points to stronger hiring by services firms last month. A gauge of employment jumped to 54.7, up from 50.1 in May. That's the first increase in five months and suggests services firms hired more briskly in June.

The ISM's overall index of service-sector activity fell to 52.2 from 53.7 in May. While any reading above 50 indicates expansion, it was the lowest in more than three years. Steep drops in new orders and a measure of the business outlook lowered the index.

Despite the hiring gains, the economy is growing at a sluggish pace. It expanded at a 1.8 percent annual rate in the January-March quarter. And most analysts expect it grew at roughly the same subpar rate in the April-June quarter. If so, that would mark the third quarter of growth below a 2 percent rate.

Still, recent reports have raised hopes for a stronger second half of the year.

A survey by the Institute for Supply Management showed that manufacturing activity expanded in June after shrinking in May. Measures of new orders and production rose.

The Commerce Department said U.S. factories fielded more orders for computers, machinery and other goods in May. And a measure of business investment increased for the third straight month.

The housing recovery is strengthening, which should help boost construction jobs.

Consumers continue to help the economy with their spending, despite higher taxes that have reduced their take-home pay this year. And a measure of their confidence rose last month to its highest point in 5½ years.

A stronger second half fueled by continued job gains could be enough for the Fed to begin tapering its stimulus. Chairman Ben Bernanke said on June 19 that the Fed would slow its bond purchase later this year and end it next year if the economy continued to strengthen.

But Bernanke added that if the economy weakens, the Fed won't hesitate to delay its pullback or even step up its bond purchases again. The bond purchases have kept long-term interest rates low.

Several Fed members have since tried to clarify Bernanke's remarks by saying that the tapering would depend on the strength of the economy — not the calendar.

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