WASHINGTON — Non-farm payrolls grew by a sharper-than-expected 163,000 jobs in July, the government said Friday in an upbeat report that also saw the unemployment rate inch up to 8.3 percent.
The strong report from the Labor Department sent stocks soaring at the open of trading, with the Dow Jones industrial average up by more than 220 points in the first hour. Markets shrugged off the one-tenth of a percentage point increase in the jobless rate, rallying around the broad hiring gains across most sectors of the economy.
“The job numbers are solid, suggesting that the economic recovery remains firmly in place. Much of the job weakness this spring appears to be related to temporary weather-related and technical measurement issues,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “Most encouraging is that the job gains are increasingly broad-based across industries. Only government is laying off.”
July’s reading represents a single month, he cautioned, and it still wasn’t strong enough to knock down the unemployment rate.
“Which at 8.3 percent makes the economy vulnerable to anything else that goes wrong,” he said. “And there is plenty to worry about in coming months, including Europe’s debt crisis and our own fiscal problems.”
Mainstream economists had expected about 100,000 new jobs, so Friday’s report was above expectations. The number is also more than double the revised 73,000 jobs that were added in June.
Many economists warned against too much cheer, however, predicting very slow growth by the fourth quarter of 2012 amid uncertainty about whether Congress will take steps to halt legally mandated tax increases and budget cuts that would take effect at the end of the year, a scenario known as the “fiscal cliff.”
“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.,” Michelle Meyer, a senior economist with Bank of America Merrill Lynch, wrote in an investor note. “Businesses will likely hold off capital expenditures, and households will likely postpone big-ticket purchases. In our view, this will result in 1 percent growth by Q4.”
Coming amid an increasingly bitter re-election campaign, the jobs numbers were a needed boost for the Obama administration, which 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.
“While there is more work that remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression,” Alan Krueger, the head of the White House Council of Economic Advisers, said in a statement couched in election-speak. “It is critical that we continue the policies that build an economy that works for the middle class as we dig our way out of the deep hole that was caused by the severe recession that began in December 2007.”
Republicans looked past the strong July hiring to seize 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 begin to take account for new entrants to the workforce and bring down the unemployment rate.
“Over time, this pace of employment growth is sufficient to reduce the unemployment rate by roughly 1/2 percentage point per year, and is on track to do so in 2012: July’s unemployment rate (8.25 percent before rounding) is 1/4 point below December (8.51 percent),” Alan Levenson, the chief economist for T. Rowe Price Associates in Baltimore, wrote in a note to investors.
Economists were encouraged that the hiring was largely across all sectors of the economy. 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. Manufacturers added another 25,000 jobs, bringing to about 532,000 the number of new manufacturing jobs since January 2010.
On the downside, state and local governments shrank by another 7,000 posts and federal government employment declined by another 2,000 jobs. The hard-hit construction sector was 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.
© 2012 McClatchy Washington Bureau