The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor’s Chief Economist Aaron Terrazas.
The U.S. economy’s AC seems to be broken. Payroll employment grew by 209,000, in line with expectations – a welcome slowdown from the previous two months but still well above conventional standards of what constitutes a tight jobs market. Unemployment was effectively flat, dipping only 0.1 percentage point to 3.6 percent. The labor market’s endless summer can’t last forever but this is a far cry from the massive slowdown that many anticipated a year ago as interest rates first began to increase. Midway through 2023, the economy has performed better than the worst case scenarios – good news that will likely do little to quiet fears that the worst has been delayed rather than avoided.
Payroll Employment Growth Slows
Employers added 209,000 jobs to payrolls in June, down from the downwardly revised 306,000 jobs added in May (originally reported as 339,000). Job gains were driven by government (+60,000 jobs added), healthcare (+14,000), social assistance (+24,000) and construction (+23,000).
Public sector employment and social assistance jobs tend to increase during recessions, so the fact that those two industries played such a large role in overall job gains is not necessarily a source of comfort. However, construction has long been viewed as a leading indicator of consumer spending – as home prices rise, households feel wealthier and tend to spend more on a wide range of goods and services – so the resilience of the real estate sector despite generational highs in interest rates adds a possible buffer to economic risks during the second half of 2023.
Unemployment Rate Flat
The unemployment rate was effectively flat, edging downward to 3.6 percent from 3.7 percent in May and remaining in the historically low range where it has now been since spring 2022. Labor force participation was also effectively flat.
The number of workers employed part time due to slack work or soft business conditions increased sharply to 6.2 million – the highest level in a year. It was, perhaps, a warning signal amid an otherwise reasonable report, though again even after the increase it remains in line with the lowest level of the decade before the pandemic.
Wage Growth Ticks Up
Year-over-year growth in average hourly earnings decelerated to 4.3 percent in May, down Year-over-year growth in average hourly earnings re-accelerated to 4.4 percent in June, slightly higher than the 4.3 percent pace reported in May. While wage growth has trended generally downward from its 2022 peaks, the modest upward shift in wage growth was not Year-over-year growth in average hourly earnings are-accelerated to 4.4 percent in June, slightly higher than the 4.3 percent pace reported in May. While wage growth has trended generally downward from its 2022 peaks, the modest upward shift in wage growth was not what the Federal Reserve likely needs to feel confident that underlying inflation pressures in the economy are under control. Combined with still strong job opening and quits data reported yesterday for May, the wage data likely imply there is still room for interest rates to rise further.
Conclusion
June’s report was broadly consistent with a still strong jobs market that remains far too tight for most policymakers’ comfort level. While job growth slowed, it was hardly the slowdown that would have been anticipated from the massive efforts to cool wage growth and inflation pressures. One month does not make a trend, but it does breathe new life into longstanding debates over where exactly the U.S. economy and labor market are headed. Focus on the slowing trend, and there is hope that the worst is behind; focus on the levels, and it’s impossible not to conclude that the labor market is still too hot to handle.
More Insights
Payroll employment grew 209,000 in June. That's the slowest pace since 2020, but the pessimistic interpretation of that data also signals how high our expectations have become. Payroll growth around 200,000 a month would've been considered a healthy & sustainable pace pre-Covid.
Construction and manufacturing seem unperturbed while softness in services led to the slowdown in payroll gains in June, ranging from professional & business services to leisure & hospitality.
Average hourly earnings were up 4.4 percent on a year-over-year basis, though on a 3-month annualized basis, they've been firmer than expected, rising 4.7 percent. Average weekly hours also rebounded to 34.4. Both are firmer signals for June than the headline slowing payroll figure.
The unemployment rate ticked down slightly to 3.6 percent in June, giving back some of the jump from May.
How have job gains continued while the unemployment rate has stayed flat? Strong growth in labor force participation as more workers rejoin the labor force. Prime-age (25–54) labor force participation hit its highest rate since May 2002.
Similarly, the prime-age employment-population ratio is at its highest level since April 2001, in a sign that rising labor force participation is not about Americans rejoining the workforce but unable to find a job. The increase in employment signals a historically strong levels of Americans looking for work and finding it.
Permanent layoffs as a share of unemployment also ticked down in June. The run-up early in the year was concerning, but some progress on this metric now which suggests the wave of layoffs in early-2023 isn't continuing at the same pace now.
Black unemployment surged to 6 percent in June, continuing the upward trend from April and reversing what had been progress towards record low Black-white unemployment gaps. Similarly, Black labor force participation has been falling since peaking earlier in 2023.
