The government reported “blowout” employment numbers Friday, marking the third straight month of strong job gains and virtually assuring the Federal Reserve will raise short-term interest rates June 30, analysts said.
The nation’s employers added 248,000 jobs in May, bringing the total so far this year to nearly 1.2 million, reversing a troubling three-year trend of job losses that continued long after the recession ended in late 2001. The unemployment rate was unchanged at 5.6 percent, but other employment indicators were encouraging. The manufacturing sector added jobs for a fourth straight month, average hourly earnings rose 0.3 percent and the average factory workweek rose to 41.1 hours.
“These blowout numbers so far this year are the convincing evidence that the economic recovery is here to stay,” Wells Fargo chief economist Sung Won Sohn said. After the long jobless recovery, the job growth so far this year has been “pretty spectacular compared to what we were expecting,” he said.
After a long campaign of rate-cutting intended to boost economic growth and prevent a downward spiral in prices known as deflation, the Fed is widely expected to raise the benchmark overnight lending for the first time in four years when policy-makers conclude their next meeting June 30.
A Reuters survey taken after the release of the monthly Labor Department report found that 22 of 22 Wall Street economists questioned expect the central bank to boost the rate to 1.25 percent from its current 46-year low of 1 percent.
Financial markets, which have been bracing for the beginning of a rate-hike cycle, took the news in stride. The Dow Jones industrial average rose about 47 points or 0.5 percent to close at 10,242.82.
The surge in job growth has helped take the heat off President Bush for his handling of the economy. While job creation has still been far below normal over the past three years, it now appears possible that the economy could show a net gain in jobs for Bush’s full four-year term.
Democratic presidential hopeful Sen. John Kerry, who had been hammering Bush’s record on jobs just a few weeks ago, has recently shifted his attack to focus on Iraq and the war on terrorism, where the Republican administration seems more vulnerable.
Kerry’s campaign issued a comment from a spokeswoman Friday, highlighting the 1.9 million private-sector jobs lost during Bush’s tenure. “Families are still struggling in this economy,” Kerry’s spokeswoman Allison Dobson said.
Including the public sector, the economy has lost 1.2 million jobs since Bush took office.
Bush, in Rome for ceremonies marking the 60th anniversary of the liberation of Europe by Allied forces, took time to praise the economy’s strength.
“Today’s jobs report shows that the American economy is strong and it’s getting stronger,” Bush told reporters. “The policies in place are working, the entrepreneurial spirit is strong, the small business sector of our economy is vibrant.”
With the economy on firmer footing, Fed Chairman Alan Greenspan and his colleagues will turn their focus to inflation, analysts said. Until just a few months ago, the Fed had been more worried about the possibility of a downward spiral in prices. But even excluding rapidly rising energy costs, consumer prices have risen at a 3.3 percent clip over the past three months, up from just 1.1 percent last year.
That is hardly runaway inflation, but a continued surge in prices could force the Fed to raise interest rates more aggressively than expected. Analysts will be watching closely when the government reports the latest figures on consumer and producer prices in mid-June.
But Fed Gov. Donald Kohn said Friday that he believes the economy still has enough surplus capacity to allow the central bank to raise rates slowly.
“The best indications are that some economic slack persists and that long-term inflation expectations are stable, which bolsters the inference that the economy has not entered a situation of steadily rising inflation,” Kohn said at a luncheon meeting with economists.
While most analysts expect the economy to continue growing at an above-average pace for the rest of this year, some are concerned about the longer-term outlook.
Morgan Stanley’s chief economist Stephen Roach said rising interest rates, surging oil prices and a potential slowdown in China’s economic growth could lead to a reversal in the current global upturn.
Roach is well-known as a pessimist, but the more measured Sohn of Wells Fargo also worries about a potential “confluence of factors” that could slow the economy.
“Employers can stop hiring very quickly,” Sohn said. “They’re still pretty cautious.”