The US economy propelled June with broad-based hiring at levels seen in recent months, keeping the country out of recession even as inflation eats away at wages and interest rates continue to rise.
Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate remained unchanged from May and near a 50-year low at 3.6 percent.
Washington and Wall Street had been eagerly awaiting the new data after a string of weaker economic indicators. June job growth beat economists’ forecasts by around 100k and offers some confirmation that a deeper downturn is not underway – at least not yet.
But the strength of the report, which also showed larger-than-expected wage increases, could give the Federal Reserve more room for hard medicine to curb inflation. Now all eyes will be on whether the Fed’s strategy of raising interest rates will plunge the country into a recession with painful consequences.
Job growth over the past three months has averaged 375k, a solid result, although there was a 539k monthly decline in the first quarter of this year. Employers have continued to hold on to workers in recent months, with initial jobless claims rising only slightly from their low in March.
The private sector has now regained its pre-pandemic employment levels — an achievement announced by the White House on Friday — although levels are still below what would have been expected in the absence of the pandemic. With the exception of the public sector, no broad sector lost jobs in June, seasonally adjusted.
“We’ve essentially worked our way back to where we were before Covid,” said Christian Lundblad, professor of finance at the University of North Carolina’s Kenan-Flagler Business School. “So this doesn’t necessarily look like a dire situation, although on some other dimensions we are struggling with inflation and economic slowdowns.”
Strong demand for labor is also reflected in the 11.3 million jobs employers had open in May, a number that remains near record highs and leaves almost two vacancies for every job seeker. In this equation, any workers laid off when certain sectors come under pressure are more likely to find new jobs quickly.
The Labor Department’s broadest measure of labor underutilization – which includes part-time workers wanting more hours and people who have been deterred from looking for a job – fell to its lowest level since the Household Survey in its current form in 1994, a sign that employers are maximizing their existing workforce as recruitment remains difficult.
Employment in services led gains in June, consistent with a fall in goods spending as consumers shifted to experiences they had to forego while public health restrictions remained in place. Leisure and hospitality businesses, still catching up with pre-pandemic employment levels, added 67,000 jobs.
Public sector employment was an exception to the broader trend, with a drop of 9,000 jobs. It was 664,000 jobs below where it was in February 2020.
The vibrant labor market has been particularly beneficial for historically marginalized groups: The unemployment rate for black Americans fell to 5.8 percent, still nearly double that for white people but at its lowest since November 2019.
The state of jobs in the United States
Job gains continue their impressive run, easing concerns about an economic slowdown but complicating efforts to fight inflation.
The healthy pace of hiring stands in stark contrast to consumer and business sentiment surveys, which have fallen to alarming lows in recent months. While the widespread perception of being in a recession seems wrong, the rapid job growth seen in the first half of the year is unlikely to continue in the second.
The sky-high prices weigh on consumer spending. Savings are shrinking. The labor force continues to be constrained by demographic aging, low immigration and barriers to work – such as the availability of care for children and elderly family members – that keep many people on the sidelines.
In a worrying signal, the percentage of people in their prime – aged between 25 and 54 – who are either working or looking for work fell to 82.3% in June from 82.6%, well below pre-pandemic levels High of 83.1 percent.
The report included signs that Covid-19 is still an ongoing concern. 2.1 million people said they could not work in June because their employer closed or lost business as a result of the pandemic, compared with 1.8 million the previous month. As inflation remains high, some people may withdraw from the labor market simply because it is too expensive to keep working.
That’s the situation facing Megan Petersen, who supports her family of four in Spokane, Washington, with a full-time job in digital marketing and a side business selling jewelry. Her husband worked for the US Postal Service until last week, when he quit to look after their 2-year-old after gas prices and childcare costs exceeded his net salary.
“Once the benefits and everything comes out of your paycheck, it’s literally less than those two things combined,” Ms. Petersen said. “That doesn’t make any mathematical sense.”
Her husband can go back to work, she said, when her younger daughter starts school. But there’s no guarantee that a plethora of jobs will await him. Consulting firm Oxford Economics forecasts the economy will add an average of just 65,000 jobs per month in 2023.
Business leaders report that while some supply chain issues have eased, new orders are falling. Whenever possible, employers automate tasks instead of hiring.
“Employers are less concerned about filling these vacancies as they watch the economy slow down,” said Bill Adams, Comerica Bank’s chief economist. “I would expect companies to probably start filling vacancies slowly before actually pulling any vacancies.”
Wage growth, while strong, weakened in June and was not enough to keep up with prices, meaning those on the lowest incomes may have to decide which basic needs to support.
As autumn begins, slowdowns are expected first in companies most sensitive to interest rates, such as construction and manufacturing.
Andrew Wernick runs Industrial Plywood, a lumber supplier in Reading, Pa., which last year raised wages significantly to compete for workers as demand for door frames and cabinets soared. Now, with rising mortgage rates driving home sales down, he’s not sure he can hold those new hires through the end of the year.
“Many of our customers are still working off backlogs and new work isn’t coming through the front door,” said Mr. Wernick. “We don’t let people go that easily when they’ve already been trained — they’re so hard to replace.”
Some industries that have been vigorously hiring workers — such as those that benefited from strong demand for goods in earlier stages of the pandemic — are dealing with a return to more typical buying patterns. This can be painful for workers who have responded to higher wages being offered by desperate employers.
Exhibit A is the trucking industry, which brought in thousands of drivers as freight rates rose and headlines announced a labor shortage. Kenny Vieth, the president of traffic data company ACT Research, said reduced spending on goods doesn’t mean enough freight to keep everyone on the road.
“People flocked to the market just as the volume of freight was decreasing,” Mr. Vieth said. “Given the rapid collapse of the spot market, we anticipate the driver capacity reset to be more rapid.”
As the last two years have shown, there can always be unpredictable headwinds – a new variant of the coronavirus, another global conflict or a natural disaster that once again shakes up supply chains.
However, the variable on most forecasters’ minds is what toll the Fed’s interest rate policy will take on economic activity.
“I think it’s inevitable that we’re going to see a slowdown,” said Cailin Birch, the Economist Intelligence Unit’s senior US analyst. “The question is whether it’s a manageable slowdown or whether there will be a collapse.”