U.S. employers added 206,000 jobs in June as hiring stabilized despite continuing inflation and high interest rates.
However, the employment picture was mixed at best, with payroll gains in April and May revised sharply downward by 111,000 and private sector payrolls rising a disappointing 136,000.
And the unemployment rate, calculated from a separate survey of households, rose to 4.1% from 4%, the highest level since November 2021, the Labor Department said Friday. The increase was driven by an encouraging increase in the labor force – the pool of people working or looking for work – that exceeded the number of people with jobs.
Job creation was slightly stronger than expected, as economists surveyed by Bloomberg had estimated 195,000 jobs were added last month.
But it’s clear that the job market wasn’t as robust this spring as expected: Payroll gains were revised downward from 165,000 to 108,000 in April and from 272,000 to 218,000 in May.
Economists generally say the report could strengthen the case for the Federal Reserve to cut interest rates as early as September.
Are wages falling or rising?
Average hourly wages rose 10 cents to $35, slowing the annual increase to 3.9%, the lowest since June 2021.
Wage growth has generally slowed as pandemic-related labor shortages eased, but it’s still above the 3.5% pace that would be in line with the Federal Reserve’s 2% inflation target.
Meanwhile, typical wage gains over the past year have outpaced inflation, giving many Americans more purchasing power.
Will the Federal Reserve cut interest rates in 2024?
The report will be welcomed by the Federal Reserve, which is banking on softening in the job market, including rising wages that could lead to inflation, despite the solid job gains.
“If the data continues to point to easing, we believe the Fed will begin discussing rate cuts at its next meeting and is a sure bet it will cut rates in September,” Rubeela Farooqui, chief U.S. economist at High Frequency Economics, said in a client note.
After inflation fell sharply last year but picked up in the first quarter, Fed officials said it would take longer than expected to gain confidence that inflation was sustainably approaching the 2% target, delaying a market-friendly rate cut. Inflation slowed again in May, but Fed Chairman Jerome Powell said officials expect the trend to continue for several months.
Powell also said a softening labor market could prompt the Fed to act even if inflation does not slow as quickly as officials hope.
Since March 2022, the Fed has raised its key short-term interest rate from near zero to a 23-year high of 5.25% to 5.5%, but has left it unchanged since July last year as inflation has slowed from a 40-year high.
What is the current job market like?
So far this year, the job market has largely ignored high interest rates and easing but still high inflation, with pay increases averaging well above 200,000 per month.
But the average monthly increase has slowed to 177,000 in the second quarter, from 267,000 in the first three months of this year and 251,000 in 2023.
The economy is expected to slow more modestly by the end of the year as high borrowing costs and prices hit consumer and business demand harder. Low- and middle-income households are struggling with near-record levels of credit card debt and all-time highs in delinquencies, contributing to the decline in retail sales. And pandemic-related savings have nearly dried up.
The Labor Department said this week that 8.1 million job openings were posted in May, up from about 7 million before the pandemic but below the record high of 12.2 million in March 2022, when a severe COVID-19 outbreak led to a labor shortage and a surge in job changes known as the “Great Resignations.”
Employment remains below pre-pandemic levels.
Job growth has been surprisingly strong, mainly because employers have been reluctant to lay off workers in the wake of labor shortages, but jobless claims have risen slightly in recent weeks, and economists expect layoffs to rise while average job gains will fall to just over 100,000 by the end of the year.
Meanwhile, illegal immigration, which has boosted job growth by increasing the supply of workers, has slowed since March, Morgan Stanley said in a research note. That, too, could slow job growth, especially in industries like construction, restaurants and hotels, the research firm said.
