In a surprising turn of events, the labor market experienced a slowdown in job creation during the month of June, dampening the extraordinary strength it had demonstrated. According to the report released by the Labor Department on Friday, nonfarm payrolls increased by 209,000, a figure that fell short of the projected growth of 240,000 as estimated by Dow Jones consensus. Additionally, the unemployment rate remained at a steady 3.6%, in line with expectations.
Though still commendable from a historical standpoint, this total represented a significant drop from the downwardly revised figure of 306,000 recorded in May. Furthermore, it marked the slowest month for job creation since December 2020, when payrolls had experienced a decline of 268,000. The slight decline of 0.1 percentage point in the unemployment rate provided a small glimmer of hope amidst the overall deceleration.
However, amidst this backdrop of slightly subdued job growth, the closely monitored wages data offered a slightly more positive outlook. Average hourly earnings demonstrated a 0.4% increase for the month and a 4.4% surge compared to the same period a year ago. Moreover, the average work week expanded by 0.1 hour, reaching a total of 34.4 hours.
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Austan Goolsbee, the esteemed Chicago Federal Reserve President, expressed his views on CNBC’s “Squawk on the Street,” stating, “Overall, the job market is exceptional and is approaching a state of equilibrium and sustainability.”
It is worth noting that the job growth figures would have been even weaker were it not for the boost in government employment, which rose by 60,000 jobs, primarily at the state and local levels. Additional sectors that demonstrated robust gains were healthcare (41,000), social assistance (24,000), and construction (23,000).
In contrast, the leisure and hospitality sector, which had served as the powerhouse of job creation over the past three years, added a mere 21,000 jobs in June. This sector has significantly cooled off, displaying only modest gains in the previous three months. The retail sector experienced a loss of 11,000 jobs, while transportation and warehousing saw a decline of 7,000.
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Anticipation had been building prior to the Labor Department’s report, fueled by the ADP’s announcement on Thursday, which reported a significant increase of 497,000 jobs in the private sector. However, following the release of the official jobs report, markets reacted negatively, with futures tied to the Dow Jones Industrial Average dropping by nearly 90 points. Meanwhile, longer-dated Treasury yields experienced a slight uptick.
Seema Shah, the esteemed Chief Global Strategist at Principal Asset Management, offered her analysis, stating, “A 209,000 increase in payrolls can hardly be described as weak. However, given yesterday’s misleading ADP report that led investors to expect another exceptional jobs number, the market may express some disappointment.”
The labor force participation rate, a crucial metric for resolving the ongoing disparity between worker supply and demand, remained constant at 62.6% for the fourth consecutive month, still below pre-Covid pandemic levels. Nevertheless, the prime-age participation rate, measuring individuals between the ages of 25 and 54, rose to an impressive 83.5%, its highest level in 21 years.
On a more comprehensive note, an alternative unemployment rate that considers discouraged workers and those working part-time for economic reasons rose to 6.9%, reaching its highest level since August 2022. Concurrently, the unemployment rate for the Black community surged to 6%, reflecting a 0.4 percentage point increase, while the rate for Asians rose to 3.2%, marking a 0.3 percentage point rise.
Additionally, the Bureau of Labor Statistics revised the May count downward by 33,000 jobs and sliced April’s total by 77,000 to 217,000. This adjustment brought the six-month average to a significant decline, plummeting from 399,000 in 2022 to 278,000.
Joseph Brusuelas, the esteemed Chief Economist at RSM, expressed his perspective, stating, “This labor market demonstrates strength, with a clear trend toward higher-paying jobs. Therefore, it is no longer appropriate to discuss an imminent recession, given the substantial gains in employment and wages.”
The jobs data holds immense significance in determining the future trajectory of Federal Reserve monetary policy. Policymakers view the robust employment market and the supply-demand imbalance as contributing factors to the current inflationary pressures, which, around this time in 2022, reached their highest level in 41 years. In response, the central bank has implemented interest rate increases in an attempt to cool the economy. However, thus far, the labor market has remained resilient, defying the tightening efforts of the Federal Reserve.
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Recently, officials from the Federal Reserve have hinted at the likelihood of additional rate hikes, despite the decision not to make a move during the June meeting. Market expectations now widely anticipate a quarter percentage point increase in July, which would elevate the Fed’s benchmark borrowing rate to a targeted range between 5.25% and 5.5%. Following the release of the jobs data, these projections remained relatively unchanged, with traders indicating a 92.4% probability of a hike occurring during the July 25-26 meeting.
Andrew Hunter, Deputy Chief U.S. Economist at Capital Economics, offered his analysis, writing, “The June report suggests that labor market conditions are finally beginning to ease more noticeably. However, it is unlikely to dissuade the Fed from proceeding with another rate hike later this month, particularly when the downward trend in wage growth appears to be stalling.”
The latest labor market data reflects a moderate deceleration in job creation, signaling a slight departure from the previously robust trend. While the employment market remains strong, wage growth and certain sectors have experienced notable setbacks. With monetary policy decisions hinging on these employment figures, the Federal Reserve faces the challenge of steering the economy while taming inflationary pressures. The outcome of their forthcoming rate hikes will shape the trajectory of the labor market and the overall economic landscape in the months to come.
