* Nonfarm payrolls rise 195,000 in June
* Unemployment rate holds steady at 7.6 percent
* Average hourly earnings rise 10 cents, work week steady
* Report shows underlying strength in the economy
By Lucia Mutikani
WASHINGTON, July 5 U.S. job growth was stronger
than expected in June and the payroll gains for the prior two
months were revised higher, cementing expectations for the
Federal Reserve to start winding down its massive stimulus
program as early as September.
Employers added 195,000 new jobs to their payrolls last
month, the Labor Department said on Friday, while the
unemployment rate held steady at 7.6 percent as more people
entered the workforce.
The government revised its count for April and May to show
70,000 more jobs were created than previously reported, a sign
the economy was on solid ground, despite higher taxes,
government spending cuts and signs of weakness overseas.
"The report was the evidence the Fed was looking for to
justify their decision to begin tapering purchases before the
end of the year," said Scott Anderson, chief economist at Bank
of the West in San Francisco.
Prices for U.S. government bonds tumbled, pushing the yield
on the benchmark 10-year Treasury note to a two-year high of
2.74 percent, as traders braced for a slowing in the purchases
the Fed has been making to keep borrowing costs low.
The higher yields on Friday helped lift the dollar to a near
three-year high against a basket of currencies.
At the same time, stocks rose as investors welcomed the
latest signs of the economy's resilience, with the Standard &
Poor's 500 index ending the week up 1.6 percent.
Economists polled by Reuters had expected employment to
increase 165,000 last month and the jobless rate to fall a tenth
of a percentage point to 7.5 percent.
In the second quarter, job growth averaged 196,333 per
month, in line with the 200,000 jobs that economists say the Fed
wants to see each month. For the first half of the year
employment gains averaged just over 200,000 per month.
In a further bright sign, average hourly earnings rose by
the most since November.
Two weeks ago, Fed Chairman Ben Bernanke said the U.S.
central bank expected to start cutting back later this year on
the $85 billion in bonds it is purchasing each month and would
likely bring the program to a complete close by the mid-2014 if
the economy progressed as it expected.
The jobs report, together with other relatively upbeat data
on housing, auto sales and manufacturing, made that plan more
likely. "A good guess would be in September, I don't think they
are anxious to pull the trigger beforehand," said Ray Stone, an
economist at Stone & McCarthy Research Associates in Princeton,
A Reuters poll of big bond dealers conducted after the jobs
figures were released found that most of them, including Goldman
Sachs and JPMorgan, expect the central bank to begin dialing
back its purchases in September.
LABOR MARKET GATHERS STRENGTH
Recent signals from Bernanke that a start date for reducing
bond purchases was approaching triggered a global selloff in
stock and bond markets, which have relied on the Fed as a steady
source of demand for financial assets.
Stock prices have turned around since then, but bonds have
continued to drop. The yield on the 10-year U.S. Treasury note
is up more than a percentage point from early May.
As bond yields have moved up, borrowing costs for both
companies and consumers have increased, presenting a fresh
headwind for the economy's recovery.
But economists said the U.S. recovery appeared to have
enough momentum to weather the rise in interest rates.
The jobless rate was unchanged last month because the labor
force swelled as younger Americans piled in. The Fed has said it
expects unemployment to drop to around 7 percent by the middle
of next year, when it anticipates ending its bond purchases.
It was the third consecutive monthly increase in the
workforce and it lifted the participation rate - the share of
working-age Americans who either have a job or are looking for
one - further away from a 34-year low touched in March.
Declining labor force participation as older Americans
retired and younger people gave up the hunt for work had
accounted for much of the drop in the unemployment rate from a
peak of 10 percent in October 2009.
An even broader gauge of the health of the labor market -
the percentage of working age Americans with a job - also rose,
reaching 58.7 percent, its highest level since November.
However, a measure of underemployment that includes people
who want a job but who have given up searching and those working
part time because they cannot find full-time jobs jumped to 14.3
percent from 13.8 percent in May.
Economists said part of the increase reflected the long-term
unemployed falling off extended jobless benefits, which have
ceased in most states because of better job market conditions.
GOVERNMENT STILL WEIGHS
All the job growth was in the private sector, where payrolls
increased by 202,000 after rising 207,000 the prior month. While
this is encouraging, more than half of the jobs were in the
retail and leisure and hospitality sectors, which typically are
Retail jobs increased 37,100 last month after advancing
26,900 in May. Leisure and hospitality employment rose 75,000
after increasing 69,000 in May.
In contrast, manufacturing payrolls fell by 6,000 jobs,
declining for a fourth straight month, while construction
employment rose a still moderate 13,000.
"It would be nice if we saw more balanced growth in
payrolls," said Stone. "We are seeing more gains in retail
employment and very good gains in leisure and hospitality, but
these are sectors where wages are not high."
Still, average hourly earnings rose 0.4 percent or 10 cents
in June. In the 12 months through June, earnings were up 2.2
percent, the largest increase since July 2011. Tepid wage growth
has been holding back the consumer-driven economy.
Government employment dropped 7,000 jobs after falling
12,000 in May. Economists, however, say the job losses are
likely due to attrition and not the deep government spending
cuts known as the sequester; most agencies have relied on
furloughs rather than layoffs to achieve savings.
Most of the drag came from state government education,
although federal government payrolls were also down.
The length of the average workweek held steady at 34.5 hours
for the third straight month.