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 suggests that labor market conditions remain tight. Average hourly earnings increased by 0.4% in June, following a similar increase in May. This kept the annual increase in wages at 4.4%, which is higher than the Federal Reserve’s 2% inflation target.
The unemployment rate fell to 3.6% in June from 3.7% in May, indicating a slight improvement in the labor market. However, there was an increase in the number of people working part-time for economic reasons, potentially due to reduced hours or slack work conditions.
While the pace of job growth has slowed, it remains strong by historical standards. The economy needs to create 70,000-100,000 jobs per month to keep up with the growth in the working-age population. The recent data, along with an acceleration in services sector activity, suggests that the economy is not heading towards a long-forecasted recession.
“The payroll numbers gave a whiff of weakening, but the labor market remains strong,” said Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “By no means is the Fed’s work done. We’re in a protracted battle against inflation, and nothing in today’s report suggests otherwise.”
The report also revealed that 110,000 fewer jobs were created in April and May, indicating that higher borrowing costs may be dampening businesses’ willingness to continue hiring. However, employment growth is still being driven by companies hoarding workers, a result of the labor shortages experienced during the COVID-19 pandemic.
Government employment increased by 60,000, with a rise in state and local government payrolls. 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 facilities.
Construction employment saw a jump of 23,000 jobs, indicating a revival in the housing market. However, sectors such as technology and finance are purging workers, while leisure and hospitality, as well as local government education, are still recovering from pandemic-related losses.
Despite the mixed job market, stocks on Wall Street were mixed, with the dollar falling against a basket of currencies and U.S. Treasury prices rising.
With workers still scarce in some industries, average hourly earnings rose by 0.4% in June, maintaining the annual increase in wages at 4.4%. However, the average workweek only rose slightly to 34.4 hours from 34.3 hours in May, below the average of 34.6 hours in January.
“Companies are continuing to retain and add to their workforce, but are not increasing weekly hours,” said Selcuk Eren, senior economist at the Conference Board in Washington. “That’s consistent with CEOs in a slowing economy choosing to hold onto workers, potentially with reduced hours, rather than let them go for fear of future hiring difficulties.”
While labor hoarding is helping the economy avoid a recession, it comes at the expense of productivity and profit margins. Economists warn that companies may start cutting jobs if the pressure on profits intensifies.
The household survey, which determines the unemployment rate, showed employment rebounding by 273,000 in June, reversing the decline of 310,000 in May. This, along with an increase in the number of people entering the labor force, contributed to the decline in the unemployment rate.
However, the number of people employed part-time for economic reasons increased by 452,000 to 4.2 million, reflecting the impact of reduced hours or slack work conditions.
The labor force participation rate remained unchanged at 62.6% for a fourth straight month. However, the participation rate for the 25-54 age group rose to 83.5%, the highest level since May 2002.
“Though demand for labor remains unmatched, the labor shortages that employers sighed over a year ago have definitely subsided some,” said Andrew Flowers, lead labor economist at Appcast. “This strong labor market has pulled workers in from the sidelines.”
Overall, while job growth has slowed, the strong wage growth and tight labor market conditions suggest that the Federal Reserve will likely resume raising interest rates later this month. The economy continues to show resilience, with the recent data indicating that a recession is not imminent.
What sectors experienced job growth in June, and which sectors saw a decrease in employment
E by 0.1 hour to 34.5 hours in June.
The latest employment report from the Labor Department revealed that the U.S. economy added the fewest jobs in 2-1/2 years in June. Nonfarm payrolls increased by 209,000 jobs, falling short of economists’ expectations of 225,000 jobs and marking the first time in 15 months that payrolls missed expectations.
Despite the slowdown in job growth, wage growth remained robust. Average hourly earnings increased by 0.4% in June, maintaining the annual increase in wages at 4.4%, which is higher than the Federal Reserve’s 2% inflation target. This suggests that labor market conditions remain tight and workers are in high demand.
The unemployment rate did see a slight improvement, falling to 3.6% in June from 3.7% in May. However, there was an increase in the number of people working part-time for economic reasons, which could be a result of reduced hours or slack work conditions.
While job growth has slowed, it is still strong compared to historical standards. The economy needs to create 70,000-100,000 jobs per month to keep up with the growth in the working-age population. Recent data, along with an acceleration in services sector activity, indicates that the economy is not heading towards a long-forecasted recession.
Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, commented on the report, stating that while there is a “whiff of weakening” in the payroll numbers, the labor market remains strong. He emphasized that there is still work to be done by the Federal Reserve in their battle against inflation.
The report also highlighted that higher borrowing costs may be dampening businesses’ willingness to continue hiring, as 110,000 fewer jobs were created in April and May. However, employment growth is being driven by companies hoarding workers as a result of labor shortages during the pandemic.
Government employment increased by 60,000, with state and local government payrolls seeing a rise. Private payrolls increased by 149,000, the smallest gain since December 2020. Healthcare payrolls rose by 41,000, indicating increased hiring in hospitals and other healthcare facilities.
Construction employment saw a jump of 23,000 jobs, indicating a revival in the housing market. However, technology and finance sectors are purging workers, while leisure and hospitality, as well as local government education, are still recovering from pandemic-related losses.
Despite the mixed job market, stocks on Wall Street had a mixed response, with the dollar falling against a basket of currencies and U.S. Treasury prices rising.
Overall, while job growth is slowing, wage growth remains strong, indicating tight labor market conditions. The economy is not showing signs of a recession, but challenges remain in terms of inflation and businesses’ willingness to hire amid higher borrowing costs.
While the sluggish job growth in the US economy is concerning, it is encouraging to see the continued strong wage growth. This raises hopes for improved job opportunities in the future, ultimately benefiting the economy as a whole.