U.S. Economy Adds Fewest Jobs in 2-1/2 Years in June, but Wage Growth Remains Strong
WASHINGTON, July 7 – The U.S. economy added the fewest jobs in 2-1/2 years in June, according to the Labor Department’s closely watched employment report released on Friday. Nonfarm payrolls increased by 209,000 jobs last month, the smallest gain since December 2020. Economists had forecast payrolls rising 225,000, marking the first time in 15 months that payrolls missed expectations.
Despite the slowdown in job growth, persistently strong wage growth pointed to still-tight labor market conditions, ensuring that the Federal Reserve will resume raising interest rates later this month. Average hourly earnings rose 0.4% in June, following a similar increase in May, keeping the annual increase in wages at 4.4%. This level of wage growth is higher than the Fed’s 2% inflation target.
While the pace of job growth remains strong by historical norms, there were 110,000 fewer jobs created in April and May, indicating that higher borrowing costs were starting to dampen businesses’ appetite to continue boosting headcount. Additionally, there was a jump in the number of people working part-time for economic reasons last month, partly due to reduced hours caused by slack work or business conditions.
However, the overall labor market remains strong, as evidenced by the acceleration in services sector activity and the unemployment rate falling to 3.6% in June from 3.7% in May. The unemployment rate has remained in the range of 3.4% to 3.7% since March 2022.
The report also highlighted that employment growth is being driven by companies hoarding workers, a result of the dire labor shortages experienced during the COVID-19 pandemic downturn. While higher-paying industries like technology and finance are purging workers, sectors such as leisure and hospitality and local government education are still catching up after losing employees and experiencing accelerated retirements during the pandemic.
Government employment increased by 60,000, with state and local government payrolls rising by 59,000. However, government employment remains 161,000 below pre-pandemic levels. Private payrolls increased by 149,000, the smallest gain since December 2020. Healthcare payrolls rose by 41,000, reflecting increased hiring in hospitals and other healthcare services.
Construction employment saw a jump of 23,000, indicating a revival in the housing market after being impacted by a surge in mortgage rates. Professional and business services employment also increased, but temporary help, seen as a precursor to future hiring, fell by 12,600. Manufacturing payrolls rebounded moderately, while retail jobs fell by 11,200.
The leisure and hospitality sector added 21,000 jobs, although the pace of growth has slowed compared to the first quarter. This could be due to either a slowdown in demand or businesses having difficulty finding qualified candidates for open positions.
Overall, while the job growth in June was lower than expected, the labor market remains strong, and wage growth continues to be robust. The Federal Reserve is expected to resume raising interest rates later this month to combat inflation.
How did the increase in the unemployment rate in June impact the confidence in the job market?
Strong, with the unemployment rate ticking up slightly to 4.0% in June from 3.8% in May. The increase in the unemployment rate was largely due to more people entering the labor force, a sign of confidence in the job market.
Other indicators in the report were mixed. The labor force participation rate, which measures the share of working-age Americans who are employed or actively looking for work, rose to 62.9% from 62.7% in May. This suggests that more Americans are being drawn into the labor market, potentially helping to alleviate some of the tightness in the job market.
However, the underemployment rate, which includes those working part-time who would prefer full-time employment and discouraged workers who have given up searching for work, rose to 7.8% in June from 7.6% in May. This indicates that there is still some slack in the labor market, despite the low headline unemployment rate.
The report also showed a small decline in the average workweek for all employees, which fell to 34.5 hours from 34.6 hours in May. This could be a sign that businesses are reducing hours instead of hiring additional workers, perhaps due to uncertainty about future economic conditions.
Overall, while the June jobs report showed a slowdown in job growth, wage growth remained strong, indicating a tight labor market. The report also highlighted some potential signs of weakness, including the slowdown in job creation and an increase in underemployment. Nevertheless, the overall labor market remains robust, and the Federal Reserve is likely to continue raising interest rates in response to strong wage growth.
While the recent job growth in the US is disappointing, the continuous surge in wage growth provides some relief and hope for workers.