Here’s Why June Was a ‘Welcome Boost’ for the Labor Market

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In June, private sector employment experienced its best growth since November 2012, according to the monthly report compiled by payroll processor ADP and Moody’s Analytics. Private employers expanded payrolls by 281,000 jobs last month. For Moody’s Analytics chief economist Mark Zandi, the numbers were proof that “the job market is steadily improving” and that demand for labor is growing. And demand for labor is increasing across all industries and company sizes. “Judging from the job market, the economic recovery remains fully intact and is gaining momentum,” said Zandi.

Last week, when the U.S. Department of Commerce released its final calculation of first-quarter gross domestic product, the revision showed that the U.S. economy performed worse than previously thought; economic output contracted at a 2.9 percent annual rate during the first three months of the year. While that significant decline is believed to be largely the result of the exceedingly cold winter and the GDP contraction is not seen as the beginning of a new trend, it did serve as a reminder of the country’s deep and lingering economic scars.

The 2.9 percent contraction is weak even for an economy in which normal growth is below 3 percent. But the temporary downturn fits within a pattern seen throughout the economic recovery. Since the recession ended nearly five years ago, GDP has very rarely achieved what economists call ideal growth. It is true, however, that the U.S. economy has come a long way since 2009, when GDP decreased 6.4 percent.

But even though the economy has rebounded, GDP growth has both failed to gain consistent momentum and remained slow by historical standards. On average, the U.S. economy has grown at an annual rate of 3.3 percent since 1929. Generally, economists say a healthy rate of growth for GDP is between 2 percent and 4 percent.

GDP growth fell just within that range in the final three months of last year, but 2014′s first quarter posed another setback. The uneven nature of the economic recovery can been seen in the ongoing weakness of the labor market, where high levels of joblessness have persisted even though the unemployment rate has ticked down. The first quarter reminded U.S. employers that the economic recovery is not without moments of weakness.

June’s hiring surge indicates companies are preparing for a broader recovery. “It all points to a relatively optimistic outlook,” Nomura Holdings chief economist Lewis Alexander said in an interview with Bloomberg. “Businesses are seeing demand and the fact that they’re hiring supports that.” In fact, ADP’s hiring numbers surpassed the most optimistic predictions.

“The June jobs number is a welcome boost,” said ADP President and Chief Executive Carlos Rodriguez. All major industries covered by ADP’s survey added jobs: professional and business services added 77,000 positions, trade/transportation/utilities added 50,000, construction added 36,000, manufacturing added 12,000, and financial activities industries added 11,000.

Service-providing businesses led the job creation, hiring 230,000 new employes, while goods-producing companies hired only 51,000. By size, small firms hired the greatest number of new workers. Those businesses employing fewer than 50 workers hired 117,000 people, medium companies employing between 50 and 499 workers hired 115,000, and large firms employing more than 500 workers added 49,000.

The Department of Labor’s Employment Situation Report showed that U.S. employers expanded payrolls by 217,000 jobs in May, a slightly greater gain than the average of 214,000 jobs added per month thus far in 2014. May also marked the fourth consecutive month in which job creation surpassed 200,000, which is considered to be a key benchmark level of job creation that indicates a healthy economy.

In the five years of the recovery, the U.S. population has grown, and so the percentage of Americans that are employed remains smaller than before the recession began. According to an analysis conducted by the liberal Economic Policy Institute, more than 7.1 million jobs need to be created to fill that gap. Furthermore, long-term unemployment remains elevated, the labor force participation level is near a record low, many workers are underemployed, and most workers have little leverage to push for wage increases.

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