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U.S. jobs growth likely to be relatively strong in June

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. employers likely maintained a fairly healthy pace of hiring in June, consistent with data that have suggested a sharp economic contraction in the first-quarter was an aberration.

Nonfarm payrolls probably increased 212,000, marking the fifth consecutive month of job gains above 200,000, according to a Reuters poll of economists. That, together with signs of a housing recovery, would cement views that growth has rebounded.

"The economy is certainly headed in the right direction," said Millan Mulraine, deputy chief economist at TD Securities in New York. "While the momentum in the labor market has shifted modestly lower from the last two months, it's still quite strong."

The economy, which has regained the 8.7 million jobs lost during the recent recession, buckled under the weight of an unusually cold weather in the first quarter, with GDP contracting at a 2.9 percent annual pace.

A slow pace of inventory accumulation by businesses and the expiration of long-term unemployment benefits and food stamps also took a toll.

But those temporary factors are fading. Factories are humming and even the housing market is regaining its footing after taking a hit from last year's jump in mortgage rates.

The Labor Department will release its monthly jobs report at 8:30 a.m. EDT (1230 GMT) on Thursday. U.S. financial markets are closed on Friday for the Independence Day holiday.

UPWARD SURPRISE

With new weekly applications for jobless benefits holding below 320,000 since mid-May and other measures of employment improving through June, payrolls could surprise on the upside.

The unemployment rate is forecast to remain at a 5-1/2 year low of 6.3 percent. But with college graduates expected to enter the labor market as they normally do in June, the labor force could increase and result in the jobless rate ticking-up.

A combination of job gains and a shrinking labor force have lowered the unemployment rate from a peak of 10 percent in October 2009.

The decrease in labor force participation partly reflects the aging of the U.S. population, but Federal Reserve Chair Janet Yellen has argued it is also due to discouraged job seekers who could be enticed back into the workforce.

Yellen has said that is one reason for the U.S. central bank to maintain its extraordinarily easy monetary policy. She also has pointed to the unusually large number of Americans who are either suffering a long spell of unemployment or working part-time because they are unable to find full-time work as suggesting a lot of slack remains in the labor market.

"That will come back to haunt us with a delayed pivot in Fed policy," said Robert Dye, chief economist at Comerica in Dallas. "I am concerned that the Yellen Fed will be late to pivot and consequently we run the risk of overheating later on."

The June data will likely follow the recent pattern of job gains across all sectors. Construction and manufacturing employment is forecast to accelerate, reflecting recent improvements in housing and a pickup in factory activity.

A slight moderation is expected in payrolls growth for services industries as retail employment continues to cool.

The length of the workweek is forecast steady at 34.5 hours, while average hourly earnings likely rose 0.2 percent.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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