Employment growth in the United States experienced a slowdown in June, with payrolls rising by 209,000, falling short of expectations. This comes after a period of strong job creation, leading to some concerns about the overall strength of the labor market.
The Labor Department reported that the unemployment rate remained steady at 3.6% in June, in line with expectations. While the increase in payrolls is still considered solid from a historical perspective, it represents a significant drop from May’s revised total of 306,000. June’s figures mark the slowest month for job creation since December 2020 when payrolls fell by 268,000.
However, there was some positive news on the wage front. Average hourly earnings increased by 0.4% for the month and 4.4% from a year ago, slightly exceeding expectations.
The government jobs sector received a boost, with an increase of 60,000 jobs, primarily at the state and local levels. Other sectors that showed strong gains were health care (41,000), social assistance (24,000), and construction (23,000). In contrast, the retail sector lost 11,000 jobs, and transportation and warehousing saw a decline of 7,000.
The leisure and hospitality sector, which had been a major driver of job growth in recent years, added just 21,000 jobs in June, indicating a considerable slowdown in comparison. Additionally, the retail sector saw a decline in jobs, while transportation and warehousing also experienced losses.
The release of these labor market figures led to a negative market reaction, with futures tied to the Dow Jones Industrial Average dropping nearly 90 points. Longer-term Treasury yields experienced a slight increase.
While the increase of 209,000 payrolls cannot be considered weak, it fell short of the higher expectations set by the previous day’s report from payrolls processing firm ADP, which showed growth in private sector jobs of 497,000.
The labor force participation rate, which is a crucial metric for assessing the balance between worker demand and supply, remained steady at 62.6% for the fourth consecutive month. However, the prime-age participation rate, measuring individuals between the ages of 25 and 54, rose to 83.5%, its highest level in 21 years.
On a broader scale, the unemployment rate, which includes discouraged workers and those holding part-time jobs for economic reasons, rose to 6.9%, the highest since August 2022. Notably, the unemployment rate for Blacks increased by 0.4 percentage points to 6%, while for Asians, it rose by 0.3 percentage points to 3.2%.
The Bureau of Labor Statistics also revised downwards the May count by 33,000 and April’s total by 77,000, bringing the six-month average to 278,000, significantly lower than the 399,000 average in 2022.
These labor market figures carry significant weight in determining the path of Federal Reserve monetary policy. Policymakers view the strong jobs market and the supply-demand imbalance as factors that could drive inflation. However, the labor market has so far defied the central bank’s efforts to tighten monetary policy.
Although the Federal Reserve opted against raising interest rates at its June meeting, recent statements from fed officials suggest that more rate hikes are likely in the future. For now, the market expects a quarter percentage point increase in July, which would bring the Fed’s benchmark borrowing rate to a targeted range of 5.25% to 5.5%.
The June jobs report implies that labor market conditions are starting to ease more significantly. Nonetheless, this likely won’t deter the Federal Reserve from pursuing another rate hike later this month, especially when wage growth appears to be stagnating.
Overall, the latest labor market figures indicate a slowdown in employment growth in the United States. While still solid, the numbers fell short of expectations, raising concerns about the strength of the labor market going forward. Wage growth, however, showed slightly more positive signs, providing some reassurance amidst the slowdown in job creation.
Note: This article is for informational purposes only and is not intended to be financial advice.
