Job Market Shows New Gains, but Pace Eases

The economy continued to advance at a healthy pace in July, creating 209,000 jobs and adding to a string of positive economic news in recent weeks that suggests it is gaining momentum after years of lackluster growth following the recession.

The Labor Department said Friday that unemployment increased to 6.2 percent. Economists had been expecting the unemployment rate to hold steady at 6.1 percent. On the jobs numbers, the consensus among economists was an expectation of about 230,000 new jobs.

The average monthly gain in payrolls has been above 200,000 for the last six months, a healthy pace of job creation.

'The job market is kicking into a higher gear; that's been the story line since the start of the year,' Mark Zandi, chief economist for Moody's Economics, said in a telephone interview before the Labor Department's release. 'We're gaining traction.'

Such optimism was supported on Wednesday when the Commerce Department, in its initial estimate of the economy's overall output for April, May and June, reported that the gross domestic product grew at a seasonally adjusted annual rate of 4 percent for the quarter, surpassing expectations, rebounding from a 2.1 percent decline during the harsh winter quarter.

But another sign of an improving economy was seen as a double-edged sword on Wall Street, where investors reacted negatively to the news on Thursday that American labor costs recorded their biggest gain since the third quarter of 2008. The Employment Cost Index report found that labor costs jumped 0.7 percent, up sharply from the 0.3 percent rate for the first quarter. The 0.5 percent average for the first half, though, was not far from the underlying trend over the previous year.

The suggestion that wages could finally be on the rise contributed to a market sell-off on Thursday, as some investors viewed the wage gain as an indication of an increasingly tight labor market that might force the Federal Reserve to raise interest rates sooner than expected because of fears of higher inflation.

Not everyone was convinced this week that the economy was threatening to burst free of its straitjacket, however.

'The economy still has a huge amount of headwind out there from the popping of the credit bubble,' said Joshua Shapiro, chief United States economist for MFR, in an interview before the labor market numbers were released. 'We're not through that by any means.'

Members of the Federal Reserve on Wednesday emerged from a two-day meeting to acknowledge that growth had rebounded, but stressed concern about the jobs market, saying conditions were below the level that most officials at the central bank considered healthy.

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