Stronger-than-expected July jobs number reported by the government Friday eased concerns about an economy slipping back into recession and gave wind to President Barack Obama’s re-election hopes. But economists warned that the road ahead is likely to remain bumpy.
Non-farm payrolls grew by 163,000 jobs in July, according to the Labor Department, which also said the unemployment rate inched up by less than a tenth of a percentage point to 8.3 percent.
The strong report sent stocks soaring for most of Friday’s trading, with the Dow Jones industrial average up more than 220 points in the first hour, closing up 217.29 for the day at 13,096.17.
Mainstream economists had expected about 100,000 new jobs, so Friday’s report was wildly above expectations and more than double the revised 64,000 jobs that were added in June. Most heartening, economists said, was that the gains were spread across all sectors but construction and government hiring.
Still, the good report didn’t change the view of most economists that the economy will slow later this year and that the Federal Reserve may take steps to boost economic activity in the coming months.
Especially concerning to economists is the uncertainty due to the ongoing European debt crisis and by doubt that Congress will take steps to halt legally mandated tax increases and budget cuts scheduled to take effect at the end of the year, the so-called fiscal cliff.
“I don’t think job growth or the economy will improve much until these issues are sufficiently nailed down. Unfortunately, this won’t happen until next year. But by this time next year I think we will have made enough progress on these thorny issues that job growth will accelerate and unemployment will fall,” said Mark Zandi, the chief economist of forecaster Moody’s Analytics.
Michelle Meyer, senior U.S. economist for Bank of American Merrill Lynch, had a grimmer assessment.
“While this is better-than-expected news, it does not change our cautious outlook for the second half of the year. We continue to believe that the uncertainty from the fiscal cliff combined with spillover from the crisis in Europe will result in slower growth in the U.S.,” she wrote in an investor note, projecting 1 percent growth over the second half of 2012. “Businesses will likely hold off capital expenditures, and households will likely postpone big-ticket purchases.”
The president of the influential National Association of Manufacturers warned in a statement that Washington’s inability to attack fiscal problems means the economy is “stuck in the mud” and that growth will remain weak.
“Manufacturers have been quite clear that their most significant concern is the uncertainty swirling around Washington. What is surprising is that the administration and some in Congress don’t seem to understand that Washington’s political games play a role,” said Jay Timmons, whose sector has added more than half a million jobs since January 2010. “An 8.3 percent national unemployment rate can’t – and won’t – improve if policymakers don’t live up to their responsibilities and act to confront the major fiscal issues facing our country.”
The jobs numbers were a needed boost for the Obama administration, which had tried just last week to put a happy face on very sluggish second-quarter growth figures that showed the economy expanding at a subpar annualized rate of 1.5 percent.
“This morning, we learned that our businesses created 172,000 new jobs in the month of July. That means that we’ve now created 4.5 million new jobs over the last 29 months – and 1.1 million new jobs so far this year,” the president said Friday. “Those are our neighbors and family members finding work, and the security that comes with work.”
The figure Obama cited was for private-sector payrolls. The overall number the Bureau of Labor Statistics reported was lower because it reflected 9,000 fewer government jobs in July.
Republicans seized on the jobless rate, which has been over 8 percent for the past 42 months during President Barack Obama’s term.
“Today’s increase in the unemployment rate is a hammer blow to struggling middle-class families,” said Mitt Romney, the Republican presidential candidate and former Massachusetts governor.
House Speaker John Boehner, R-Ohio, echoed Romney, arguing that the president’s proposal to let Bush-era tax cuts expire late this year for American families who earn more than $250,000 annually amounts to further hits on employment.
“Any new job creation is welcome news, but with unemployment still above 8 percent and rising, and millions of Americans looking for work, it is insane to raise taxes on small businesses,” Boehner said.
The question on the minds of economists is whether July’s job numbers can be sustained. It’s widely thought that the economy needs to generate more than 150,000 new jobs monthly to provide work for those just entering the workforce and to bring down the unemployment rate.
Many economists expect the Federal Reserve to purchase more bonds and take other steps to drive down lending rates and encourage businesses to expand. Fed Chairman Ben Bernanke has said he stands ready to act, and some expect that to happen as early as the September meeting of the rate-setting Federal Open Market Committee.
“The report doesn’t change the big picture – the recovery remains very sluggish – and on its own won’t dissuade the Fed from injecting more stimulus next month,” Nigel Gault, the chief U.S. economist for forecaster IHS Global Insight, wrote in a research note.
The breadth of the hiring encouraged economists. Professional and business services, a broad category that encompasses higher-paying white-collar jobs, was up by 49,000 jobs. The leisure and travel sector added 27,000.
The chief economist for the manufacturers association, Chad Moutray, wrote in his blog, Shopfloor, that the addition of 25,000 manufacturing jobs was helped by the creation of 12,800 jobs in the automotive sector.
On the downside, state and local governments shrank by another 7,000 posts and federal government employment declined by another 2,000. The hard-hit construction sector was essentially flat for the month, losing another 1,000 jobs. The health care sector has been a strong suit of the economy and it grew again in July, but only by a sluggish 12,000 jobs.
Within the unemployment numbers, there were continued signs of stress. The number of workers classified as discouraged or marginally attached to the workforce – shorthanded as underemployed – inched upward to 15.2 percent in July, from 15.1 percent in June. The average duration of joblessness fell slightly, from 39.9 weeks in June to 38.8 weeks in July. This could, however, reflect more long-term unemployed Americans dropping out of the labor market as benefits run out.