The latest employment report is encouraging to many economists because the stronger job growth doesn’t appear to be just a one-month blip. But some worry that it’s so strong the Federal Reserve may pull back efforts to boost the economy.
The Labor Department’s newest data released Friday shows the U.S. added 195,000 jobs in June. The prior two months were also revised upwards — above 190,000 for both April and May.
That’s three months of more robust job growth.
“It looks like the labor market is quite a bit stronger than we initially assumed,” says Paul Edelstein, director of Financial Economics at IHS Global Insight. “That’s despite some of the headwinds that are coming from overseas and from the federal sequester, so it looks like the economy is just doing better than we thought.”
That said, the mandatory federal cutbacks as a result of the sequester are costing the country at least some jobs. The jobs gains announced Friday weren’t enough to push down the unemployment rate, which remains at 7.6 percent.
John Challenger heads up Challenger Grey & Christmas, which helps laid-off workers find new jobs. His firm has been tracking some of the sequester-related cuts.
“Over 10,000 of those job cuts have been made so far this year, and they’re coming from all areas of the economy — prisons, schools. We saw this month a uranium enrichment plant cut jobs because an Energy Department grant had been pulled back,” Challenger says. The defense and aerospace industries are also feeling job cuts, he says.
Still, the job growth in the private sector now appears to be strong enough that some people worry that the Federal Reserve might start to pull back on its efforts to boost the economy. Fed officials recently signaled that they’re considering a pull-back or a “tapering” of that support if the economy continues to improve. And markets have been nervous because they’re uncertain as to when the Fed might act.
“Easy monetary policy has been a major plus for the economy over the past nine months or so,” Edelstein says. “I’m concerned that they may have stumbled more recently by talking about tapering because then markets don’t believe that the Fed is committed to these policies, and they’ll be less effective.”
For example, mortgage interest rates rose after the Fed began talking about this. If rates kept rising a lot, that might slow the housing recovery.
But other experts disagree.
Martin Feldstein, an economist at Harvard and the former top economic adviser to President Reagan, would like to see the Fed pull back on its efforts because he says they aren’t having that much of a positive impact on the economy.
“But it’s increasing the risks in the economy because interest rates are so artificially low that more and more investors are taking risks that could hurt the economy as they unwind,” Feldstein says.
He and others worry that low interest rates push people to chase higher returns in shakier investments. That can lead to bubbles in the price of stocks and certain types of bonds.
That’s not to say that Feldstein thinks the economy is off to the races and doesn’t need any help at all. He says the latest jobs numbers are a good sign, and the housing market has been a bright spot lately. But, he says, “the rest of the economy is really very weak.”
Feldstein says, for example, overall gross domestic product growth remains quite sluggish. The economy grew at a 1.8 percent annual rate in the first three months of 2013.
For its part, the Obama administration is certainly happy to see the better-than-expected jobs numbers.
“I think today’s report is part of a picture of a recovery that’s gaining traction, but the president is not satisfied given how deep the hole is,” says Alan Krueger, the president’s top economic adviser.
Over the past year, the number of long-term unemployed has fallen by 1 million people. But that still leaves 4.3 million Americans looking for work who’ve been unemployed for 6 months or longer.