image credit:People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fayetteville.instagram
U.S. job growth slowed somewhat in June, but the unemployment rate rose to more than a 2-1/2-year high of 4.1% and wage rises moderated, easing labor market conditions and putting the Federal Reserve on course to drop interest rates this year.
The Labor Department’s carefully watched employment report on Friday revealed 111,000 fewer jobs generated between April and June than expected. Last month, 277,000 people joined the workforce, raising the unemployment rate from 4.0% in May to its highest level since November 2021.
Annual salary growth is slowing for the first time in three years due to a growing labor pool.
With prices moderated in May, the data reaffirmed that the disinflationary trend is back on track after first-quarter inflation rose.
After significantly tightening monetary policy in 2022 and 2023, financial markets anticipate the U.S. central bank to ease in September.
“Slowly, but surely, U.S. labor market conditions are cooling,” said Fitch Ratings chief economist Brian Coulton. “Alongside recent better inflation prints, this will help reassure the Fed that they can safely start cutting rates in September.”
Government hiring boosted nonfarm payrolls by 206,000 last month, according to the Labor Department’s Bureau of Labor Statistics. May employment growth was drastically reduced to 218,000 from 272,000. April payroll was lowered down 57,000 to 108,000.
Given the current immigration boom, economists believe the economy needs to produce at least 150,000 jobs every month to keep up with working-age population growth.
Healthcare and state and municipal governments, which have returned to pre-pandemic levels, drove hiring in June.
Local government—excluding education and state government—added 70,000 jobs. Ambulatory and hospital hiring boosted healthcare employment by 49,000.
The construction industry added 27,000 jobs. Retailers and manufacturers lost employment.
Professional and commercial services lost 17,000 jobs, while temporary assistance lost 49,000. That suggests weaker payroll growth.
WAGE GROWTH DOWN
Demand for labor, products, and services is falling due to 525 basis points of Fed rate rises since 2022 and the expiration of COVID-19 savings.
A rate decrease at the Fed’s Sept. 17-18 meeting was 72% likely in financial markets. Traders also expect a second rate drop in December.
Since July, the Fed has kept its overnight interest rate at 5.25%-5.50%. The central bank’s June 11-12 meeting minutes, released on Wednesday, revealed officials understood the economy was weakening and “price pressures were diminishing.”
After rising 0.4% in May, average hourly earnings climbed 0.3% last month. The 12-month period through June saw 3.9% salary growth. This was the lowest salary increase since June 2021, after a 4.1% increase in May. Wage increase of 3%–3.5% meets the Fed’s 2% inflation objective.
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