Get ready to pay more for that mortgage or car loan.
Stronger than expected job growth in June and a healthy rise in wages are likely to convince the Federal Reserve that the US economy is on a solid recovery and that it is okay to raise interest rates at the end of the summer, market analysts said Friday.
US employers added 280,000 jobs last month — comfortably over the 226,000 forecast — the largest gain since December, according to the Labor Department.
The strong showing — which included an 8-cents-an hour gain in wages in May from April, bringing the 12-month wage rise to 2.3 percent — allayed fears the economy had slowed from its lugubrious recovery.
“This certainly puts more ammunition in the Fed’s plan to start liftoff in September,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
An increase by the Fed in the so-called Fed funds rate — how much the Central Bank charges banks to borrow money overnight — will lead to higher interest rates on home loans, car loans and credit card interest rates. It could have the effect of slowing down purchases.
At the same time, the unemployment rate, obtained through a separate survey, rose to 5.5 percent from a near seven-year low of 5.4 percent in April. The increase could reflect more people, likely new college graduates, entering the work force.
In fact, 82 percent of the growth in the labor force and 76 percent of the jobs growth in May came from 20-to-24 year-olds, the Wall Street Journal reported.
Payrolls for March and April were revised to show 32,000 more jobs created than previously reported. That together with an eight cent gain in average hourly earnings raises the chances of the Federal Reserve tightening monetary policy this year.
“This certainly puts more ammunition in the Fed’s plan to start lift-off in September,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
Meanwhile, the dollar rallied against a basket of currencies, while prices for US government debt dropped sharply — meaning the US stock index futures fell.
The labor participation rate — that is, the percent of entire working-age population looking for a job — rose slightly to 62.9 percent. As out-of-work folks get discouraged and stop looking for work, the number declines.
“Today’s employment report is good news,” David Kotok, chief investment officer at Cumberland Advisors said in a statement. “When the unemployment rate goes up because the participation rate goes up, it shows that more people are returning to seek work. This is positive.”
There had been chatter on Wall Street that Janet Yellen, chair of the Fed, would not be able to raise interest rates this year because weak early year economic data suggested the economy was too frail to withstand such a hike.
The Fed has kept overnight rates near zero since December 2008.
