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Why higher unemployment signals a strengthening economy

08 Juillet, 2018, 07:42 | Auteur: Auguste Feret

The unemployment rate ticked up to 4% from 3.8%, as the strong labour market encouraged more people to look for work. And that, in turn, means that more people are optimistic about finding work.

Nonfarm payrolls rose by 213,000 jobs last month as manufacturers stepped up hiring, the Labor Department said on Friday.

Automakers added 12,000 jobs in June, but the tariffs could weigh on that industry's job growth in the coming months.

May's job gains were also revised up to 244,000 from 223,000, and job gains have now averaged 211,000 per month over the last three months.

Signs of the Trump administration's trade war with China and did not show up in the report. Manufacturing added a healthy 36,000 jobs in June.

The overall picture is again one of a strengthening labor market, but one that is still not tight enough to produce substantial wage growth.

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"A higher unemployment rate coinciding with a strong jobs gain in June is the best of possible worlds for Canada, with more of us working, but perhaps a bit more room for that to continue without triggering an inflation spike", Avery Shenfeld, chief economist at CIBC Capital Markets, wrote in a note to clients.

Washington is also engaged in fights with other major trade partners, including Canada, Mexico and the European Union after President Donald Trump imposed tariffs on steel and aluminum imports.

Minutes of the Fed's June 12-13 policy meeting published on Thursday offered an upbeat assessment of the labor market.

Gross domestic product estimates for the April-June period are above a 4 percent annualized rate, double the 2.0 per cent pace logged in the first quarter. Trump has spoken about slapping tariffs on imported cars, trucks and auto parts, which General Motors has warned could hurt the USA auto industry and drive up vehicle prices. The U.S. and China slapped tit-for-tat duties on $34 billion worth of the other's imports on Friday. But for now the sector, which accounts for about 12 per cent of the US economy, appears in good health.

Now back to the number you are seeing in today's headline - the 4 percent unemployment rate. The manufacturing sector buzzed with activity last month, and spending on construction rose. But retailers shed 21,600 jobs, with the losses concentrated at general merchandise stores.

Manufacturers and services firms have said in recent surveys that their business is improving despite anxiety about the tariff showdown between the United States and China. But, among them, there are over 5.6 million who'd like a job, according to the BLS.

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