U.S. job gains strong but unemployment rate rises

  • U.S. non-farm payroll gain of 206k in June was close to consensus but after downward revisions to each of April and May that shaved 111k off of employment gains in those prior months.
  • In June, it was again new hires in government (+70k) and health services (49k) that accounted for the lion’s share of job growth. All other private sector employment grew by a smaller 90k, with gains in construction (+27K) and wholesale (+14K) offset by losses in professional and business services (-17k), retail (-9k) and manufacturing (-8k).
  • The separately released household survey showed the U.S. unemployment rate ticking higher to 4.1%. That’s half a percent higher than the unemployment rate a year ago while the labour force participation rate stayed unchanged from last year, at 62.6%.
  • Among the unemployed, those that were jobless for 27 weeks and more saw a sharp rise in June, by 166k to 399k above levels a year ago.
  • Total hours worked among private industry employees contracted by 0.2% in June after a big gain in May. On a quarterly basis, private hours worked increased by about 2% (annualized) in Q2.
  • Finally, wage growth after having risen sharply in May slowed in June. Average hourly earnings rose by 0.3% or 3.9% from last year. To-date, a lot of that increase still reflects a catching up to past high inflation – real hourly earnings as of May (the last available CPI data) grew by 0.4% each year since 2019, much slower than the 1.1% trend rate in the three years pre-pandemic.
  • Bottom line: June brought another robust payroll gain in the U.S. but according to the meeting minutes, FOMC participants have begun to question if job gains in the establishment survey have been overstated with the separately calculated unemployment rate continuing to rise. Jobless claims have been broadly edging higher in recent weeks and survey data has also pointed to rising uneasiness with employment situation among consumers in the U.S. Overall, the slowdown in labour market conditions is evident but slow, just as the progress with easing inflation. That means the Fed will need more time and more data before committing to lowering interest rates. We think won’t come until December.

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