WASHINGTON, July 7 (Reuters) – The U.S. economy added the fewest number of jobs in 2-1/2 years in June, but consistently strong wage growth points to still-tight labor market conditions that certainly warrant the Federal Reserve’s resumption of rate hikes. later this month.
Friday’s closely watched employment report from the Labor Department also showed that 110,000 fewer jobs were created in April and May, indicating that higher borrowing costs are beginning to dampen companies’ appetite to continue boosting headcount. There was also a jump in the number of people working part-time for economic reasons last month, due in part to a reduction in working hours due to sluggish business or working conditions.
However, the pace of job growth remains strong by historical standards and added to data this week showing an acceleration in service sector activity suggesting that the economy was nowhere near a long-anticipated recession.
“Payroll numbers gave a whiff of weakness, but the job market remains strong,” said Sean Snaith, director of the University of Central Florida’s Economic Forecasting Institute. “The Fed is by no means done. We are in a protracted battle against inflation, and nothing in today’s report suggests otherwise.”
A survey of institutions showed that non-farm payrolls increased by 209,000 jobs last month, the smallest rise since December 2020. Economists polled by Reuters had expected payrolls to rise by 225,000. This was the first time in 15 months that payroll has exceeded expectations.
Job growth averaged 278,000 per month in the first half of the year. The economy needs to create 70,000 to 100,000 jobs per month to keep up with growth in the working-age population.
Employment growth has been attributed in part to companies hoarding workers, a legacy of the severe labor shortage it experienced as the economy rebounded from the COVID-19 pandemic downturn in 2021 and early 2022.
While high-paying industries such as technology and finance are purging workers, sectors such as entertainment and hospitality as well as local government education are still catching up after losing employees and experiencing accelerated retirement during the pandemic.
Government employment increased by 60,000, supported by a 59,000 increase in state and local government payrolls. Government employment remains below its pre-pandemic levels of 161,000.
Private payrolls increased by 149,000, also the smallest gain since December 2020. Healthcare payrolls rose by 41,000, reflecting increases in staffing in hospitals, healthcare and residential facilities as well as home health care services.
Employment in construction jumped by 23,000. The housing market is showing signs of recovery after being hit by rising mortgage rates. The Fed has raised its policy rate by 500 basis points since March 2022 when it embarked on its fastest monetary tightening campaign in more than 40 years.
There were also increases in employment in professional and business services, although temporary assistance, seen as a harbinger of future employment, fell by 12,600. Manufacturing payrolls rebounded moderately as the sector struggled with weak demand. Retail jobs, however, decreased by 11,200.
Leisure and hospitality salaries increased by 21,000. However, the pace slowed from the first quarter. Demand could either be slow or companies are having trouble finding workers as hinted at by the Institute for Supply Management’s June survey, which showed some service firms reported being “unable to find qualified candidates for some of their vacancies.”
Government data on Thursday showed that there were 1.6 jobs created for every unemployed person in May. Employment opportunities in leisure and hospitality remain 369,000 people below pre-pandemic levels.
[1/2]An employee employment sign with a QR code is seen in the window of a company in Arlington, Virginia, US, April 7, 2023. REUTERS/Elizabeth Frantz/File Photo
Stocks on Wall Street were mixed. The dollar fell against a basket of currencies, while US Treasury rates rose.
Strong wage gains
With workers still scarce in some industries, average hourly earnings rose 0.4% after rising by the same margin in May. That kept the annual wage increase at 4.4% in June, far too high to match the federal inflation target of 2%.
Average working hours per week increased to 34.4 hours from 34.3 hours in May. However, it is lower than the average of 34.6 hours in January.
“Companies continue to retain and add to their workforce, but they don’t increase weekly hours,” said Selcuk Eren, chief economist at The Conference Board in Washington. “This is consistent with CEOs choosing in a slowing economy to stick with workers, with the prospect of shorter working hours, rather than letting them go for fear of future staffing difficulties.”
Labor hoarding helps the economy avoid a recession, but at the cost of productivity, which fell in the first quarter, and profit margins. Economists are of the opinion that companies use the ax if pressure on profits intensifies.
The household survey from which the unemployment rate was derived showed employment rebounding to 273,000, reversing a decline of 310,000 in May. This more than offsets the increase in the number of people entering the labor market.
As a result, the unemployment rate fell to 3.6% in June from a seven-month high of 3.7% in May. The unemployment rate has remained in the range of 3.4%-3.7% since March 2022.
But the number of people working part-time for economic reasons rose by 452,000 to 4.2 million, partly reflecting an increase in those whose hours were cut due to recessionary work or working conditions.
The labor force participation rate, or the share of working-age Americans who have or are looking for a job, was unchanged at 62.6% for the fourth consecutive month. But the participation rate for the 25-54 age group rose to 83.5%, the highest level since May 2002, from 83.4% in May.
“Although labor demand remains unmatched, the labor shortage that employers sighed over a year ago has certainly relieved some,” said Andrew Flowers, Appcast chief labor economist. “This strong job market has drawn in workers from the sidelines.”
(Reporting by Lucia Moticani) Editing by Daniel Wallis, Chizu Nomiyama and Andrea Ricci
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