The U.S. economy added 209k jobs in June, slightly below the consensus forecast of 225k. Revisions to the two prior months were negative, subtracting 110k jobs from the previously reported figures.
- Hiring over the last three-months averaged 244k jobs per-month, a step down from the 312k measured over the three-months prior (March-January).
Hiring across the service sector (+120k) in June was the weakest it has been since December 2020 when it shed 339k jobs. Gains were narrowly concentrated in education & healthcare (+73k), leisure & hospitality (+21k), professional & business services (+21k) and ‘other’ services (+17k). Goods-producing industries (29k) notched a decent gain, with job growth concentrated in construction (+23k) and manufacturing (+7k). Government added 60k jobs last month.
- The breath of hiring – as captured by the diffusion index – narrowed to 58.0, its lowest level in three-months and second lowest of this expansionary cycle.
In the household survey, civilian employment rose by 273k, while the labor force grew by a smaller 133k. As a result, the unemployment rate ticked down 0.1 percentage points to 3.6%. Meanwhile, the participation rate held steady at its cyclical high of 62.6% for the fourth consecutive month.
Average hourly earnings rose 0.4% month-on-month (m/m) – matching May’s upwardly revised gain – and are up 4.4% over the past year and an even stronger 4.7% on a three-month annualized basis.
Key Implications
There was plenty of evidence in this morning’s report that the labor market is starting to cool. Not only did hiring come in below expectations – a first in fifteen months (!) – but revisions to prior months were also meaningfully lower. The breadth of hiring also narrowed considerably. It’s important to note, however, that we are still very early stages. Hiring over the past three-months is still running at a pace that’s nearly three times what’s required to meet trend growth in the labor force.
Beyond the hiring numbers, signals on the inflation front remain somewhat mixed. While the optimist may point to average hourly earnings having slowed on a trend basis over the past year, the pessimist could counter with progress having stalled more recently. Moreover, other more comprehensive measures of wage growth including the Atlanta Fed’s wage tracker and the Employment Cost Index (ECI) both continue to run well above average hourly earnings. We’ll get the Q2 ECI reading on July 28th, and it will be interesting to see if it shows any recent signs of wage pressures easing.
Despite the early signs of cooling, the labor market remains far too tight. Taken alongside the recent strength across other key economic indicators (i.e., housing starts, home sales, new orders of capital goods) all point to an economy that’s still running far too hot to cool inflation. With nearly all Fed officials supporting a more restrictive policy rate, another 25-basis point rate hike later this month seems inevitable.
