• Nonfarm payrolls employment grew by 372,000 in June

• Downward revisions subtracted 74,000 jobs from the two prior months

• Unemployed rate was unchanged or at 3.6%

• Average hourly earnings rose by 0.3% MoM, 5.1% YoY in June

• Labor force participation slipped to 62.2%

• Strong jobs report likely to keep the Fed aggressive

The US economy added 372,000 jobs in June. That was similar to the pace in the prior two months and brought the overall shortfall in employment from pre-pandemic to just over half a million. 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. Total nonfarm employment is down by 524,000, or 0.3%, from its pre-pandemic level in February 2020. The private sector has now recovered all 21 million jobs it lost in the first two months of the pandemic. Employment rose to 129.8 million in June from 129.6 million in February 2020.

The increase in hiring in June was broad based. By sector, education and health services led job creation, with 96,000 hires, while professional and business services added 74,000 positions. Bars, restaurants, hotels and other companies in the hospitality business created 67,000 new jobs. Employment also rose by 57,000 in health care and 36,000 in warehousing and transportation. Additional sectors showing strong gains included manufacturing (29,000), information (25,000) and social assistance (21,000). Government jobs fell by 9,000.

The unemployment rate was held steady or at 3.6%, close to a 50-year low of 3.5% reached just before the pandemic. Labour force participation slipped to 62.2% from 62.3%, leaving it well below the pre-pandemic peak. Average hourly earnings rose 0.3% MoM. The monthly rise equates to a 5.1% YoY gain, somewhat softer than the 5.3% gain posted in May.

The unemployment rate remained steady at 3.6% for a fourth straight month. The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.3m. This measure is 215,000 higher than in February 2020. The long-term unemployed accounted for 22.6% of all unemployed persons in June. The labour force participation rate, at 62.2%, and the employment-population ratio, at 59.9%, were little changed over the month. Both measures remain below their February 2020 values (63.4% and 61.2%, respectively). An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell sharply, dropping to 6.7% from 7.1%. The number of persons employed part time for economic reasons declined by 707,000 to 3.6m while the number of persons not in the labour force who currently want a job was essentially unchanged at 5.7m in June.

Wages continued to rise in just about every sector, except for manufacturing and professional and business services, where they remained steady from the month before. Average hourly earnings increased 0.3% mom though there are signs that growth is cooling. Overall wages are up 5.1% yoy, though they have not kept pace with prices, which have increased 8.6% in the same period.

Strong jobs report likely to keep the Fed aggressive

June employment report showed jobs growing at a faster clip amid the nonfarm payrolls that increased 372,000 in June. The income measure has certainly softened with high inflation in recent months but remains in expansionary territory. The Fed will certainly welcome a slower pace of wage growth. And the impressive June payrolls report confirmed that employment remained strong. The unemployment rate remained low at 3.6%, and average hourly wages were up a healthy 5.1% yoy, both pointing to tight labour market conditions.

June’s strong job growth, especially in the teeth of high inflation, shows that the expansion remains on solid ground. The strong report would likely mean another sharp interest rate hike in July as the Fed focuses on bringing down inflation. The major takeaway from the minutes for the June 14-15 FOMC meeting was that the meeting's participants generally felt comfortable with the decision to raise the effective federal funds rate by 75 bps in order to tamp down mounting inflation. The strong job growth keeps pressure on the Fed to continue raising interest rates when it meets later this month. After years of keeping interest rates at or near zero, the central bank has so far hiked rates three times this year, by a total of 1.5 percentage points, in the hope of slowing the economy just enough to curb inflation, which is at 40-year highs, without pushing it into a deep recession. Fears of a more serious slowdown in the world’s largest economy are rising, despite the impressive job gains.

Source: BIMB Securities Research - 12 Jul 2022