In the latest employment report by the Labor Department, U.S. nonfarm payrolls rose by 209,000 in June, marking a significant slowdown from May's revised figure of 306,000. While the job growth rate fell short of the predicted 225,000 by Reuters' economists, the unemployment rate shrank to 3.6% from 3.7% in the previous month.
This slowdown in job creation, however, has not shaken the strong labor market condition, which stands resilient amidst the Federal Reserve's aggressive monetary policy tightening campaign. The Fed has implemented rate hikes amounting to 500 basis points since March 2022, but the nation's economy remains unscathed, defying predictions of a potential recession.
As employment growth eased, the average hourly earnings continued to increase, rising by 0.4% in June and marking a 4.4% growth on an annual basis. This consistent wage increase signals a possibility of the Fed resuming its interest rate hikes as early as later this month, as the persistently high annual wage growth could disrupt the central bank's 2% inflation target.
In the wake of slowing job growth, various sectors showed a disparate picture. Technology and finance sectors, typically associated with higher pay, are downsizing, while others like leisure and hospitality and local government education are still rebounding from the COVID-19-triggered job losses and early retirements. Meanwhile, businesses have been maintaining their workforce size, an aftereffect of the severe labor shortages during the economy's rebound from the pandemic downturn.
Economists caution that this trend of worker hoarding could potentially hide the economy's underlying weaknesses, such as the slump in worker productivity observed in Q1. There's a growing concern that slower wage growth, particularly with the loss of high-paying jobs in sectors like technology and finance, could result in sluggish consumer spending, a vital pillar of the economy.
Despite the shortfall in job growth, the labor market strength remains an essential factor guiding the Federal Reserve's monetary policy. The stubbornly robust employment market, coupled with a supply-demand imbalance, is considered to be accelerating inflation, which in 2022 hit a 41-year peak. This scenario may lead the Fed to further tighten monetary policy with an anticipated quarter percentage point increase in July, despite a pause at the June meeting.
As the unemployment rate for blacks and Asians rose to 6% and 3.2%, respectively, the labor force participation rate remained unchanged at 62.6% for the fourth consecutive month. This figure, however, continues to be below the pre-Covid-19 level. Simultaneously, the rate for prime-age participants, those between 25 and 54 years of age, hit a 21-year high at 83.5%.
