Lars and All: IBD on Employment Report:
The much-awaited jobs report held no big surprises. Jobs growth and hourly earnings were stronger than expected in June, but were offset by a higher unemployment rate and downward revisions to earlier reports.
The U.S. economy added 268,000 nonfarm jobs in June, the Labor Department said Friday. That's better than estimates of 225,000. But May payrolls were revised lower to a loss of 5,000 vs. the original gain of 11,000. April job gains also were trimmed.
In the separate household survey, the jobless rate rose to 4.3% from May's 29-year low of 4.2%. Most analysts had expected no change.
Wage pressures picked up just a bit in June. Average hourly earnings rose a nickel to $13.23 in June, after a downwardly revised 4-cent gain in May. Year over year, earnings climbed 3.7%, vs. 3.5% in May. That's still below the cycle peak of 4.4% in April 1998.
On a quiet day heading into the three-day holiday weekend, the 30-year Treasury yield was flat at 6.01%.
''On the surface it was a neutral report, but underneath it should give bond markets some things to celebrate,'' said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, a Chicago-based investment firm.
Total hours worked rose at just a 0.7% annual rate in the second quarter. With the economy expanding at a 4% rate, we should see ''another rip-roaring explosion in productivity'' of 3% or more, Wesbury said.
The Federal Reserve has said productivity gains are key to offsetting wage pressures and keeping inflation under control. If wages rise too fast or productivity growth slows, policy- makers will almost certainly raise interest rates again.
Manufacturers shed another 35,000 workers last month, despite widespread signs that the sector is powering ahead. Factory jobs have fallen by nearly a half- million since March 1998.
New factory orders rose 1.1% in May, the Commerce Department said Friday. That follows a 1.4% loss in April. Though up and down from month to month, orders are in an uptrend. Year over year, they grew 5.3%, the fastest pace since December 1997. Shipments hit a 14-month high.
The National Association of Purchasing Management's index of manufacturing activity hit a two-year high on Thursday. The NAPM employment index pointed to growth, but the official tally failed to confirm it.
Factory jobs lag output, but should turn around soon, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. He notes factory overtime in June was the highest in more than a year.
And average factory earnings jumped 9 cents, to $13.94 per hour. Year over year, they grew 3.4%, vs. 2.7% in May.
David Resler, an economist at Nomura Securities in New York, credits productivity gains with the seeming paradox. Substituting capital for labor, manufacturers can produce more with the same or fewer workers.
The workers that remain are more productive and should earn more. This is an ongoing, long-term shift to services and away from manufacturing, he said.
Service jobs rose 151,000 in June after a modest May gain. Construction firms added 26,000 jobs, reversing most of May's loss. Retailers, transportation firms and the FIRE industries -finance, insurance and real estate - all posted solid job gains.
The jobs report should translate into more strong consumer spending.
''The numbers imply that June was a good month for income. Presumably, a lot of that was spent,'' said Ken Mayland, chief economist at KeyCorp in Cleveland.
He said tight labor markets aren't limiting growth. He notes 389,000 Americans joined the work force last month.
''There's so much talk that the economy is running out of workers, but the bodies are still out there,'' Mayland said. ''The opportunities created by tight labor markets keep pulling new people into the work force.''
But Resler came to the opposite conclusion. He points out that the labor force has only grown 63,000 over the past five months.
''The pool of labor is drying up,'' he said.
He expects that shallow pool to limit job growth. The average job growth over the last six months is just 202,000. That's down from 250,000 at the end of last year and is the slowest in three years.
But workers seem to be getting more confident about being able to find another job. The ''quit rate'' - the share of people leaving their jobs voluntarily - rose to 14.5%, close to a nine-year high.
Fed Chairman Alan Greenspan has said many times that high job insecurity in the 1990s may have restrained wage gains. If workers are more self-assured, wage pressures might start building.
''All of these indicators are going to give Chairman Greenspan a little bit of indigestion,'' Mayland said.
The Fed moved to a neutral bias after raising rates by 25 basis points Wednesday. But if the numbers remain this strong, Fed policy-makers will at least move back to a tightening bias at the Aug. 24 meeting, he said.
Resler said the Fed may move to a tightening bias, but he doesn't expect any more rate hikes for a while.
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