Job Growth Slows

June jobs report shows labor market still hot

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After 14 straight months of underestimating monthly job growth, forecasters finally missed high. U.S. payrolls expanded by 209,000 jobs in June, just below the consensus forecast of 225,000. That’s the fewest jobs added in any month since December 2020, and April and May’s numbers were revised down by a combined 110,000. Despite the miss and downward revisions, we’re still adding jobs at a faster rate than before the pandemic.

The pace of hiring is falling back down to earth, which is what the Fed wants to see, but the labor market remains scorching hot. The unemployment rate ticked down from 3.7% to 3.6% in June, slightly higher than the 3.4% rate from earlier this year but still extremely low by historical standards.

More importantly, the unemployment rate fell for the right reasons; the number of employed people increased by 273,000 (this is a different survey than the headline number) and the number of unemployed people fell by 140,000.

The prime age (25-54) employment to population ratio increased to 80.9% in June. That’s the highest it’s been since 2001 and just one percentage point below the record high of 81.9% in April 2000.

I love to point out that the nobody wants to work anymore theory has been thoroughly debunked, but it is true for one demographic: old people. Labor force participation has recovered for every age group except those 65+, who are participating in the labor force at a rate about two percentage points below the pre-pandemic level. I wish them well in retirement.

A tight labor market typically means big wage increases, and that’s exactly what happened in June. Average hourly earnings increased by 0.4% for the third straight month and are up 4.4% year over year. Earnings increases will have to cool down to get inflation back to 2%.

Looking at job growth by sector, education and health services led the way, followed by government and construction.

The biggest surprise in this report is that leisure and hospitality added just 21,000 jobs for the month. Yesterday’s ADP employment report (which we’ll cover at length in today’s Week in Review) showed leisure and hospitality adding 232,000 jobs. My guess is there’s something wacky going on with either ADP or the BLS’ seasonal adjustment factors, and maybe both.

Temporary help services (think temp agencies and staffing firms) lost 12,600 jobs in June, more than any other segment, and there are about 130,000 fewer temporary help services jobs than there were in October 2022. Temporary help services employment typically leads broader labor market activity by a few months, and hiring will continue to slow in the coming months if that relationship holds true.

I’m not convinced it will. With unemployment low and jobs plentiful, it’s plausible that workers are skipping the staffing agency and applying directly for the job they want.

Final Thoughts

Big picture, this is another strong jobs report. Employers have added at least 200,000 jobs in 30 straight months, people continue to enter the workforce, and unemployment is historically low while prime age employment is historically high. This puts the Fed on track for another 25 basis point rate hike at their July meeting.

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