The broadly positive jobs report suggests that the U.S. economy was improving before the United Kingdom startled the world late last month by voting to leave the European Union. The “Brexit” vote roiled financial markets and raised fears that the global economy would slump and possibly even succumb to a recession.
The June hiring spurt marked a sharp improvement from May’s dismal showing, when only 11,000 jobs were added, and April’s modest gain of 144,000. June’s increase was the largest since October 2015.
The unemployment rate rose from 4.7 percent to a still-low 4.9 percent, the Labor Department said Friday in its monthly jobs report. But the uptick occurred mainly for an encouraging reason: More Americans began seeking jobs – a sign of growing confidence in their prospects – though most didn’t immediately find work.
Investors were pleased with the results: The Dow jumped over 200 points in morning trading.
The job growth raises hopes that the U.S. economy, which has repeatedly defied overseas weakness before, may be able to further strengthen even if the rest of the world slows.
“This is clearly positive news after the worrying slowdown in previous months,” Andrew Hunter, assistant economist at Capital Economics, wrote in a research note.
Average hourly pay, a chronic weak spot in the seven-year U.S. recovery from the Great Recession, ticked up in June. Over the past 12 months, average wages are up 2.6 percent – the best year-over-year gain since December, though still below the historical trend for healthy economies of about 3.5 percent.
Friday’s report provided broad evidence of an improving job market. The number of part-time workers who would prefer full-time jobs fell sharply, reversing an increase in May.
And hiring was widespread across both higher and lower-paying sectors. Manufacturers added 14,000 jobs, the most since January. Professional and business services, a category that includes accountants, engineers and architects as well as temporary workers, gained 38,000. Retailers added nearly 30,000 workers, health care over 58,000.
Even with June’s big gain, job growth thus far in 2016 trails last year’s pace. Employers added an average of 172,000 jobs a month in the first six months of this year. That’s generally enough to lower the unemployment rate, but it’s below last year’s average of 230,000.
The recent hiring slump had come after the economy grew at a tepid 1.1 percent annual rate in the first three months of the year. Americans’ spending rose at the slowest pace in two years during that time – a significant drag given that consumer spending drives around 70 percent of the economy.
Concerns about the global economy have deepened since the U.K.’s Brexit vote. The yield on the 10-year U.S. Treasury note this week touched a record low of 1.34 percent, though it rose to a still very low 1.4 percent after Friday’s jobs numbers.
Such a decline has historically signaled anemic growth and even an outright recession. When investors fear for the future and seek safe returns for their money, they typically shift into Treasurys. That flow of money forces down yields.
The hiring slowdown caught Federal Reserve officials off guard. During their June meeting, they cited the weak jobs figures as a key reason for putting off any further rate increases. That sentiment signaled a shift from their April meeting, when many of the policymakers had indicated that they were prepared to raise rates if the job market and the economy continued to improve.
“Today’s report helps the case for more Fed tightening before too long – if strength is sustained – although officials are being ultra-cautious amidst turmoil in global markets,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research report.
Recent U.S. economic data had pointed to an improvement from the sluggish start to the year, though all of it pre-dated the Brexit vote. Americans, for example, ramped up their spending in April and May, and measures of consumer confidence also grew. The stronger spending led economists to forecast that annualized growth rebounded to 2 percent or more in the April-June quarter.
Manufacturing companies expanded in June at their fastest pace since November, according to a survey by the Institute for Supply Management, a trade group. Services companies, including retailers and banks, also grew at a faster pace in June, the ISM found.
And home sales have marched upward this year despite a low supply of houses for sale. Sales of existing homes reached a nine-year high in May.