Once again, U.S. non-farm payrolls beat expectations, rising 213k in June. That followed through on a solid 244k tally in May. In fact, job gains over the past two months were revised upwards 37k.
The unemployment rate rose two ticks to 4%, but that is less concerning given that it was in part due to an increase in the labor force participation rate, from 62.7% in May to 62.9% in June.
The headline participation rate has been relatively flat over the past two years. More importantly, however, the participation rate for core age workers (25-54 yrs) rose two ticks to 82% in June, continuing the improving trend seen over the past three years. It still remains about one percentage point below its pre-recession peak, suggesting there is still some labor market slack.
Goods sector hiring held up well in June, rising 53k positions, boosted by 36k new jobs in manufacturing. Mining (4k) and construction (+13k) also gained new jobs.
Services sector hiring decelerated somewhat, but still rose a solid 149k new jobs. Strength was seen in business services (+55k) and health care (+25k), while the retail sector shed 22k jobs, reversing the May gain.
One somewhat sour note was modest growth in wages, up 0.2% in June, against expectations for a 0.3% increase. On a year-on-year basis, growth in average hourly earnings ticked down to 2.7%.
Key Implications
We are running out of pithy headlines to describe the strength of the US job market. June marks two straight months of better than expected job growth, and upward revisions to historical job gains. At 4%, the unemployment rate is still very low, and the increase in labor force participation is a good sign that a healthy job market is drawing more workers back to the workforce.
The fact that wage growth isn’t stronger remains a bit of a puzzle. But we take consolation that other measures of wage gains that aren’t affected by demographics or industry mix show healthier gains for workers. Still the job market is strong enough to warrant continued gradual rate hikes by the Federal Reserve.
