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A moderate jobs gain of 206,000 in June, plus large downward revisions to April and May numbers show that the moderating trend in the labor market started in April, earlier than previously thought. This will likely give the Federal Reserve one of the puzzle pieces it needs to set the stage to start cutting interest rates this fall. The other puzzle piece, the June consumer price index data, will be released next week on July 11.
Healthcare and state and local government hiring are propping up the gains. These two sectors accounted for three-quarters of the total June increase. Food service had been the third sector driving large gains for the last three years, but has apparently reached its limit. While healthcare will likely continue to add jobs robustly, state and local government hiring is expected to diminish later this year as its post-pandemic hiring surge abates.
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Job declines show that the goods-side of the economy is slowing. The manufacturing sector continues to be flat, with small job cuts this year. Temporary help nosedived in June with its largest monthly decline of all in the past two years and counting. Temp help is often used by manufacturers to manage changes in production. The retail and warehousing sectors also lost jobs in June.
The unemployment rate edged up to 4.1%, and the number of those unemployed for more than four weeks climbed. While workers may not be losing jobs at a higher rate, those that are unemployed are having a harder time finding new jobs.
Annual wage growth eased to 3.9% in June. The labor market is slowing, but wage growth usually lags the slowdown. Nevertheless, expect pay raises to end the year at about a 3.7% rate, a bit higher than we previously expected. Wages of nonsupervisory employees are growing a bit higher, at 4.0%, and should also end the year at about 3.7% growth.
Going forward, expect that monthly job gains will fall below 200,000. April’s and May’s job gains were revised down by more than 50,000 each, and changed the picture of economic growth this year from robust to easing. Even if the economy rebounds, monthly job gains will still continue slowing, simply because growth in the labor force cannot stay above the rate of current population growth for long, as it has been doing for the past two years.
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