US job growth was stronger than expected last month and the payroll gains for the prior two months were revised higher, cementing expectations for the US 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 US Department of Labor said on Friday, while the unemployment rate held steady at 7.6 percent as more people entered the work force.
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 US 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 US 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 more than 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 US central bank expected to start cutting back later this year on the US$85 billion in bonds it is purchasing each month and would likely bring the program to a complete close by the middle of next year 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, New Jersey.
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.
Recent signals from Bernanke that a start date for reducing bond purchases was approaching triggered a global sell-off in stock and bond markets, which have relied on the Fed as a steady source of demand for financial assets.
However, economists said the US 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 about 7 percent by the middle of next year, when it anticipates ending its bond purchases.
It was the third consecutive monthly increase in the work force 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.