Why higher unemployment signals a strengthening economy

Economy adds 213K jobs in June unemployment ticks up to 4 percent

The June jobs is out and it's a beat.

The Labor Department says the unemployment rate rose to 4.0 percent from 3.8 percent as more people began looking for work. Wages continued their modest rise, increasing 2.7 percent from the year before.

Despite the low unemployment and struggles to find workers, companies still appear hesitant to significantly raise pay in many industries. The magic of rounding off decimal points (from 3.75 percent in May up to 3.8 percent; and from 4.05 percent in June down to 4.0 percent) made the increase in the jobless rate look smaller than it actually was.

"I'm really excited to see that the labor force is growing", said Catherine Barrera, chief economist of the online job site ZipRecruiter. "Consumer perceptions of the labor market also remain near multi-decade highs".

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Ontario added 34,900 jobs for an increase of 0.5 per cent compared with the previous month, while Saskatchewan posted its largest monthly gain in over six years with the creation of 8,300 positions, which represented 1.5 per cent growth. The labor force participation rate is still hovering near historic lows. But retailers cut 21,600 jobs last month, after boosting payrolls by 25,100 in May. In other words, only longer-term unemployed workers drove the higher unemployment rate. On Thursday, Trump floated the prospect of imposing tariffs on more than $500 billion in Chinese imports.

Savings from the tax cuts enabled companies in the Standard & Poor's 500 stock index to buy back a record number of shares in the first three months of 2018. "This generates a rising standard of living and strong income growth".

The U.S. economy faces potential drags going forward, including escalating trade disputes with major trading partners such as the European Union, China, Canada and Mexico.

The Trump administration has also applied tariffs on steel and aluminum from allies like Canada and Mexico and has threatened to abandon the North American Free Trade Agreement. Restaurants added 16,400 jobs in June, under the average of 18,400 over the year.

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