(Bloomberg) — The U.S. labor market took one step forward and one back in June as job creation advanced while wages stagnated and the size of the labor force receded.
The addition of 223,000 jobs followed a 254,000 increase in the prior month that was less than previously estimated, a Labor Department report showed Thursday in Washington. The jobless rate fell to a seven-year low of 5.3 percent as people left the workforce.
The figures indicate the economy is improving slowly following a first-quarter slump rather than surging ahead as consumer spending strengthens. That will probably keep Federal Reserve policy makers on their timeline to raise interest rates later this year.
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"This is a softer report than people expected but it's certainly not a game changer," said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, who projected a 225,000 gain. "The job market is still solid. The big surprise was wages. Wages look weak."
Average hourly earnings at private employers held at $24.95. They increased just 2 percent over the 12 months ended in June, following a 2.3 percent gain the prior month. They've posted a 2 percent gain on average since the current expansion began.
Seasonal adjustments, or a calendar bias, probably explain the downward pressure on the wage figures in June after artificially boosting them in May, according to economist Ted Wieseman of Morgan Stanley and Lou Crandall, chief economist at Wrightson ICAP LLC.
Calendar bias
The Labor Department surveys employers for the week that includes the 12th of the month. That means the survey week last month ended on Saturday, June 13. Those getting paychecks bi- monthly would normally not be paid until the 15th, which has tended to distort the wage readings when the survey week comes early, Morgan Stanley economist Ted Wieseman in New York said in a research note.
Stocks fluctuated between gains and losses as investors waited for Greece's weekend referendum on austerity measures. The Standard & Poor's 500 Index was little changed at 2,077.43 at 11:01 a.m. in New York.
The median forecast in a Bloomberg survey called for a 233,000 advance. Estimates of 97 ranged from gains of 160,000 to 350,000 after a previously reported 280,000 advance for May. Revisions to prior reports subtracted a total of 60,000 jobs from payrolls in the previous two months.
Jobless rate
The unemployment rate, which is derived from a separate Labor Department survey of households, fell from 5.5 percent and is the lowest since April 2008. The decrease reflected fewer Americans in the labor force.
The participation rate, which indicates the share of the working-age people in the labor force, decreased to 62.6 percent, the lowest since October 1977, from 62.9 percent. Labor force participation slumped among teens, with a more moderate decrease among men 20 years and older.
The improving outlook for the labor market is among the reasons Fed policy makers have said they may begin to raise the benchmark interest rate this year from near zero.
Fed Chair Janet Yellen has said she expects the central bank to raise borrowing costs this year, and that subsequent increases will be gradual without following a predictable path.
"Although progress clearly has been achieved, room for further improvement remains," Yellen said at a June 17 press conference. She described wage growth as "relatively subdued."
Consumer spending
Recent data underscore why employers are adding staff. Consumer purchases, which account for about 70 percent of the economy, rose 0.9 percent in May, the biggest gain since August 2009, Commerce Department figures showed last week.
Households are feeling upbeat about employment prospects as more respondents than at any time since early 2008 said jobs were plentiful, a Conference Board report showed on Tuesday.
A separate report Friday from the Labor Department showed applications for unemployment benefits held below 300,000 for a 17th straight week. Jobless claims rose by 10,000 to 281,000 in the week ended June 27. The median forecast called for 270,000 applications.
–With assistance from Kristy Scheuble in Washington.
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