Economists expected the economy to add 250,000 jobs in June, a significant drop from the 400K/month rate over the last year as the economy began to slow under the heavy burdens of runaway inflation and Federal Reserve actions. It didn’t slow in June, however, as the US added jobs at nearly the same rate as before. The Bureau of Labor Statistics reports that 372,000 jobs were added to the rolls, bringing the US closer to its February 2020 pre-pandemic level of employment:
Total nonfarm payroll employment rose by 372,000 in June, and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and business services, leisure and hospitality, and health care. …
The labor force participation rate, at 62.2 percent, and the employment-population ratio, at 59.9 percent, were little changed over the month. Both measures remain below their February 2020 values (63.4 percent and 61.2 percent, respectively). (See table A-1.)
The number of persons employed part time for economic reasons declined by 707,000 to 3.6 million in June and is below its February 2020 level of 4.4 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs. (See table A-8.)
The number of persons not in the labor force who currently want a job was essentially unchanged at 5.7 million in June. This measure is above its February 2020 level of 5.0 million. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job. (See table A-1.)
However, the previous two months got revised downward, sharply so in the case of May:
The change in total nonfarm payroll employment for April was revised down by 68,000, from +436,000 to +368,000, and the change for May was revised down by 6,000, from +390,000 to +384,000. With these revisions, employment in April and May combined is 74,000 lower than previously reported.
For those keeping track, the new number of total jobs filled is now 151.98 million. That puts the US a little over a half-million jobs shy of the February 2020 figure of 152.504 million jobs filled, the last full month before the pandemic shutdowns destroyed 22 million jobs in April and May of the same year.
It means we have recovered 98% of the jobs lost since March 2020, but that is a static measurement. Population growth in the US — between 2 and 2.5 million per year — requires constant job growth to keep up the employment-population ratios and maintain a healthy economy. Even at a minimal population-growth assumption of 4 million over 28 months, we need an additional 2.4 million jobs to keep pace with the February 2020 dynamic status quo, so we are now about 2.9 million jobs shy of full recovery from the pandemic.
What about wages? That’s also a good news/bad news situation:
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In June, average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents, or 0.3 percent, to $32.08. Over the past 12 months, average hourly earnings have increased by 5.1 percent. In June, average hourly earnings of private-sector production and nonsupervisory employees rose by 13 cents, or 0.5 percent, to $27.45. (See tables B-3 and B-8.)
Note that these numbers are not adjusted for inflation. In an environment where inflation remained at the Fed’s target level of 2%, that kind of wage growth would be spectacular. In this environment, where Consumer Price Index inflation has been well over 5% for a year and has been around or above 8% for the last four months, it’s a measure of eroding real income.
Even core CPI, which excludes food and energy (where inflation bites hardest for most American households), has run above 5.1% for the past six months. The next CPI report will come out next Wednesday, and at least based on signals from the producer price index, is likely to remain high even with a slight dip in gas prices over the last week. That dip in gas prices won’t help with core CPI, of course, which is where the Fed typically looks for calculating its strategy to contain inflation — as well as the jobs reports.
What does this mean? Green lights all the way for another big rate increase, which has already been signaled to investors:
The U.S. stock market has rebounded this week amid lighter-than-average trading volumes as weak economic figures have led investors to question how aggressively the Federal Reserve will raise interest rates to fight inflation down the road. Lately, data have shown a drop in activity in industries ranging from manufacturing to home construction, accelerating worries among traders that the economy is headed for a recession.
This week, U.S. central bankers reaffirmed their commitment to fighting inflation, first in minutes from the Fed’s June meeting, and then again on Thursday when two Fed officials signaled support for another 0.75-percentage-point interest rate increase later this month. Both also indicated that recession fears may be overblown.
“I think there has been this relief that central banks, particularly the Federal Reserve, will get a handle on inflation,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “Inflation, and the pain that it’s causing and could cause in the future if it continues to spiral out of control, is considered to be the biggest risk for financial stability for economies.”
And that came when expectations of jobs growth were well below what the economy delivered in today’s report. We can probably expect not just a 75-basis-point hike this month but a series of such big moves into the fall as a means of tamping down the corrosively high inflation we have had over the past fourteen months. That will likely create a recession at some point, but at least for now, we still aren’t seeing it.
Note: Normally I’d include a look at ADP’s private-sector jobs growth projections, but … we don’t have any. ADP announced that they are now partnering with the Stanford Digital Economy Lab to “retool” their projections. That’s the second time in roughly a decade that ADP has gone to the workbench for retooling their reports. Their official announcement makes no mention of their previous partnership with Mark Zandi and Moody’s Analytics. Make of that what you will.
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