Economy Posts Largest Job Gains in Eight Months in June

U.S. job growth surged in June as factories and retailers boosted hiring, confirming the economy has regained speed after a first-quarter lull, but tepid wage growth could see the Federal Reserve still cautious about hiking interest rates.

Non-farm payrolls increased by 287,000 jobs last month, the largest gain since last October, the Labor Department said on Friday. May payrolls were revised down to show them rising 11,000 rather than the previously reported 38,000.

"It's a great number. This affirms the economy is still on decent footing but it doesn't change the Fed's path," said Darrell Cronk, chief investment officer at Wells Fargo Wealth and Investment in New York.

Last month's tally beat economists' expectations for an increase of only 175,000 jobs. While the unemployment rate rose two-tenths of a percentage point to 4.9 percent, that was because more people entered the labor force, a sign of confidence in the jobs market.

Wage growth remains sluggish even as the labor market tightens. Average hourly earnings increased only two cents or 0.1 percent in June. The year-on-year gain in earnings rose to 2.6 percent after advancing 2.5 percent in May.

The strong rebound in June payrolls added to data on consumer spending and housing in suggesting that economic growth accelerated from the first-quarter's anemic 1.1 percent annualized rate. The Atlanta Fed is currently forecasting the economy growing at a 2.4 percent pace in the second quarter.

But the signs of strength in the economy precede Britain's stunning vote last month to leave the European Union.

Given the U.S. central bank's desire to wait on more data to assess the economic impact of the so-called Brexit, the employment report probably has little impact on the near-term outlook for interest rates.

The Brexit referendum on June 23 roiled financial markets, raising fears that sustained volatility might negatively impact companies' hiring and investment decisions. Economists have also warned that slower growth in Europe and a stronger dollar could weigh on the U.S. economy.

Minutes of the Fed's June 14-15 meeting published on Wednesday showed that officials "agreed that ... it was prudent to wait for additional data on the consequences of the UK vote."

The Fed raised rates in December for the first time in nearly a decade, but markets now expect no further increase this year.

U.S. stock futures rose sharply after the report. The dollar raced to a two-week high against the euro while U.S. Treasuries pared losses.

Manufacturing employment increased 14,000 last month after shedding 16,000 jobs in May. The retail sector added 29,900 jobs, and the leisure and hospitality sector gained 59,000 jobs.

Construction payrolls were unchanged after two months of declines. The return of 35,100 Verizon workers, who were excluded from May's payroll count while on a month-long strike, boosted information sector employment last month.

Even with June's jobs bounce back, forward momentum in the labor market has slowed. Job gains averaged 282,000 per month in the fourth quarter, but employment has increased by an average of only 171,500 jobs per month in the first half of this year.

Economists say the deceleration is normal given the relatively advanced age of the economy's recovery from the 2007-09 recession, with the labor market now near full employment.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of percentage point to 62.7 percent.

A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 9.6 percent from 9.7 percent in May.

(Reporting by Lucia Mutikani; Additional reporting by Chuck Mikolajczak in New York; Editing by Andrea Ricci)