Employment in the US increased by more than expected in the month of June as 213,000 new jobs were created in June, another hearty gain that shows companies are finding ways to fill open jobs despite a dwindling pool of skilled workers. Adding to the bright picture, the government said 244,000 new jobs were created in May instead of 223,000. April's increase was raised to 175,000 from 159,000.
Goods sector hiring held up well in June, rising 53,000 positions, boosted by 36,000 new jobs in manufacturing. Mining (4,000) and construction (13,000) also gained new jobs. Services sector hiring decelerated somewhat, but still rose a solid 149,000 new jobs. Strength was seen in business services (55,000) and health care (25,000), while the retail sector shed 22,000 jobs, reversing the May gain.
Despite the stronger than expected job growth, the unemployment rate rose to 4.0% in June from 3.8% in May. However, that is less concerning given that it was in part due to an increase in the labor force participation rate, from 62.7% in May to 62.9% in June. The headline participation rate has been relatively flat over the past two years. More importantly, however, the participation rate for core age workers (25-54 yrs) rose two ticks to 82% in June, continuing the improving trend seen over the past three years. It still remains about one percentage point below its pre-recession peak, suggesting there is still some labor market slack.
One somewhat sour note was modest growth in wages, up 0.2% in June, against expectations for a 0.3% increase. On a year-on-year basis, growth in average hourly earnings ticked down to 2.7%.
After falling to 3.8% in May, the unemployment rate rebounded to 4.0% in June as just over 600,000 workers joined the labor force. That drove the participation rate back up to 62.9% and ended a three-month slide in participation rate for prime-age workers (ages 25-54).
Wage growth was a miss though as average hourly earnings rose 0.2% mom versus expectation of 0.3% mom and 2.7% yoy.
We are running out of pithy headlines to describe the strength of the US job market. June marks two straight months of better than expected job growth, and upward revisions to historical job gains. At 4%, the unemployment rate is still very low, and the increase in labor force participation is a good sign that a healthy job market is drawing more workers back to the workforce.
The fact that wage growth is not stronger remains a bit of a puzzle. But we take consolation that other measures of wage gains that are not affected by demographics or industry mix show healthier gains for workers. Still the job market is strong enough to warrant continued gradual rate hikes by the Federal Reserve.
The June employment report gives the Federal Reserve a green light to continue to raise interest rates at what’s been shown to be its preferred once-every-three-months pace. The central bank can carry on with plans to raise interest rates in September and December and three times next year.
Minutes of the Fed’s June meeting showed officials believe this pace will put rates at “neutral” sometime next year. That is the level of interest rates that is neither boosting nor dampening growth. If rates get to neutral it would be a sea change for Fed policy, ending more than a decade of Fed policy designed to be propping up the economy.
Source: BIMB Securities Research - 9 Jul 2018
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