Nonfarm payrolls increased by 209,000 jobs in June, marking the smallest gain in 2-1/2 years, according to a report from the Labor Department. This comes as the unemployment rate fell to 3.6% from 3.7% in May. While the job growth numbers were lower than expected, wage growth remained strong, indicating tight labor market conditions.
The report also showed that 110,000 fewer jobs were created in April and May, suggesting that higher borrowing costs may be dampening businesses’ willingness to continue hiring. Additionally, there was an increase in the number of people working part-time for economic reasons, potentially due to reduced hours or business conditions.
Despite these factors, economists noted that the pace of job growth remained strong by historical standards, indicating that the economy is far from a recession. Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, commented that while the labor market may be cooling, it is not slowing down fast enough to prevent the Federal Reserve from raising interest rates later this month.
The survey of establishments showed that nonfarm payrolls increased by 209,000 jobs in June, the smallest gain since December 2020. Economists had forecasted payrolls to rise by 225,000. However, the economy needs to create 70,000-100,000 jobs per month to keep up with the growth in the working-age population.
The report also highlighted the disparities in job growth across industries. While higher-paying sectors like technology and finance have been reducing their workforce, industries such as leisure and hospitality, as well as local government and education, are still recovering from the impact of the COVID-19 pandemic.
Government employment saw an increase of 60,000 jobs, driven by a rise in state and local government payrolls. However, government employment remains below pre-pandemic levels. Healthcare payrolls also saw a rise of 41,000 jobs, reflecting increased hiring in hospitals, nursing and residential care facilities, and home health care services.
Construction employment experienced a jump of 23,000 jobs, indicating a revival in the housing market after being impacted by higher mortgage rates. The Federal Reserve has been steadily raising interest rates since March 2022, signaling its tightening of monetary policy.
Professional and business services employment also saw increases, while leisure and hospitality payrolls increased by 21,000 jobs. However, employment in the leisure and hospitality industry remains below pre-pandemic levels by 369,000 jobs.
Average hourly earnings rose by 0.4% in June, matching May’s increase. In the 12 months through June, wages increased by 4.4%. While this is beneficial for workers, it remains too high to be consistent with the Federal Reserve’s 2% inflation target.
Following the release of the report, U.S. stocks opened lower, the dollar fell against a basket of currencies, and U.S. Treasury yields rose.
The unemployment rate, derived from the household survey, showed strong employment gains that outweighed the increase in the number of people entering the labor force. As a result, the unemployment rate slipped to 3.6% in June from a seven-month high of 3.7% in May.
However, there was an increase in the number of people employed part-time for economic reasons, with 452,000 more individuals working under these conditions in June. This may reflect a rise in those whose hours were reduced due to slack work or business conditions.
In conclusion, while the job growth in June was lower than expected, the persistently strong wage growth indicates a tight labor market. Despite concerns of a cooling labor market, economists believe it is not slowing down enough to prevent the Federal Reserve from raising interest rates later this month.