The variety of workers elevated by 209,000, lower than anticipated

Employment growth slowed in June, taking some of the momentum out of a previously surprisingly strong labor market.

Non-farm payrolls rose by 209,000 in June and the unemployment rate stood at 3.6%, the Labor Department reported on Friday. This compares to Dow Jones consensus estimates of 240k growth and a 3.6% unemployment rate.

The total, while still solid from a historical perspective, represents a notable decline from May’s revised down total of 306,000 and was the month with the lowest job creation since the workforce fell by 268,000 in December 2020. The unemployment rate fell by 0.1 percentage points.

The closely watched wage figures were slightly higher than expected. Average hourly wage increased 0.4% month-on-month and 4.4% year-on-year. The average weekly working time also rose by 0.1 hour to 34.4 hours.

“Overall, the job market is excellent and returning to balanced, sustainable levels,” Chicago Federal Reserve Chairman Austan Goolsbee said on CNBC’s Squawk on the Street.

Job growth would have been even slower had it not been for an increase in government jobs, which rose by 60,000, almost all of which were at the state and local levels.

Other sectors that posted strong gains were healthcare (41,000), social assistance (24,000) and construction (23,000).

The leisure and hospitality industry, which has been the strongest job growth engine over the past three years, added just 21,000 new jobs this month. The sector has cooled off significantly, posting only muted gains over the past three months.

The retail sector lost 11,000 jobs in June, while transport and warehousing saw a 7,000 drop.

There were some expectations that the Labor Department’s report could come in at a much higher figure than expected after payroll firm ADP reported private sector jobs grew by 497,000 on Thursday.

Markets declined after the jobs report was released, with futures linked to the Dow Jones Industrial Average falling nearly 90 points. Longer dated government bond yields were slightly higher.

“An increase in the number of employees by 209,000 can hardly be described as weak,” said Seema Shah, chief global strategist at Principal Asset Management. “But after yesterday’s ADP report lured investors into expecting another record number of jobs, the market may be disappointed.”

The labor force participation rate, considered a key indicator for bridging a wide gap between labor demand and supply, remained stable at 62.6% for the fourth straight month and is still below pre-Covid levels. However, the participation rate in prime working age – measured in the 25 to 54 age group – rose to 83.5%, the highest level in 21 years.

A broader unemployment rate, which includes discouraged workers and those who have part-time jobs for economic reasons, rose to 6.9%, the highest since August 2022. At the same time, the black unemployment rate rose to 6%, a 0.4 percentage point increase, and rose to 3.2% for Asians, up 0.3 percentage points.

In addition to a 33,000 downward revision for the May count, the Bureau of Labor Statistics reduced the April total by 77,000 to 217,000. That put the six-month average at 278,000, a significant drop from 399,000 in 2022.

“This is a strong labor market where demand for higher-paying jobs is clearly trending,” said Joseph Brusuelas, chief economist at RSM. “So, given the strong growth in jobs and wages, I no longer think it is appropriate to speak of an imminent recession.”

The employment numbers are believed to be the key to determining the direction of the Federal Reserve’s monetary policy.

Policymakers believe the strong labor market and supply-demand imbalances will help boost inflation, which reached a 41-year high around this time in 2022.

They are using rate hikes to cool the economy, but the labor market has so far resisted the central bank’s tightening efforts.

In recent days, Fed officials have been hinting that further rate hikes are likely, despite deciding against them at the June meeting.

Markets are broadly anticipating a quarter-point hike in July that would bring the Fed’s interest rate to a target range of 5.25% to 5.5%. The outlook was little changed after the release of jobs data, with traders pricing in a 92.4% probability of a rate hike at the July 25-26 meeting.

The June report “suggests that labor market conditions are finally relaxing more significantly,” wrote Andrew Hunter, deputy chief US economist at Capital Economics. “Nonetheless, the Fed is unlikely to hike rates again later this month, especially if the downward trend in wage growth appears to be faltering.”

Comments are closed.