Halfway through the year, and four years into the downturn brought on by the coronavirus pandemic, the U.S. jobs engine is still going strong, even if it is showing increasing signs of slowing.
Employers delivered another solid month of hiring in June, the Labor Department reported Friday, adding 206,000 jobs in the 42nd straight month of employment growth.
At the same time, the unemployment rate rose a tenth of a point to 4.1 percent, up from 4 percent and above 4 percent for the first time since November 2021.
The job gain was slightly higher than most analysts had expected. But the totals for the previous two months were revised down and the rise in unemployment was unexpected. This has led many economists and investors to shift from having full faith in the labor market to worrying about it.
“These numbers are good,” said Claudia Sahm, chief economist at New Century Advisors, who cautioned against overly negative interpretations of the report.
But “the importance of the unemployment rate is that it can tell us a little bit about where we might be going,” he added, noting that the rate had been rising since hitting a half-century low of 3.4 percent at the beginning of last year.
Wage gains have also moderated. Average hourly earnings rose 0.3% in June from the previous month and 3.9% from a year earlier, compared with a 4.1% year-over-year change in May. But it's good news for workers, wage gains have been outpacing inflation for about a year.
The market's response to Friday's report was muted, with stocks rising modestly. However, government bond yields fell, reflecting traders' growing confidence that the Federal Reserve will begin cutting interest rates.
The benchmark interest rate, close to zero in early 2022, has now been above 5 percent for more than a year in the Fed's drive to control inflation. The impact on lending across the economy has persisted longer than many businesses or households looking to buy a house or car had calculated.
Most economists expect a further slowdown in job and wage growth until the Fed acts to ease credit conditions. There is growing evidence of a slowdown.
Layoffs are near record lows, but an indicator known as the hiring rate, which tracks the number of hires in a month as a share of overall employment. — has dropped considerably. This means that the relatively few people who lose their jobs generally have more trouble finding new opportunities.
About three-quarters of the job gains in the June report came from health care, social assistance and government. Some other industries produced small increases, and some, including manufacturing and retail, lost jobs overall.
Much of government procurement is part of a long awaited updated by state and local governments, which have lamented understaffing and have only recently recovered from their pre-pandemic employment peaks. And America's aging population has created a consistently high demand for health care workers and other caregiving jobs.
Economists tend to feel more confident, however, when most of the job gains come from sectors more indicative of private sector momentum.
“Jobs are trending downward,” said Nick Bunker, director of economic research at recruiting site Indeed.
This may partly explain why the ranks of the long-term unemployed—those out of work for 27 weeks or more— now it's up their 2017-19 average.
With inflation to 2.6 percent, not far from the Fed's 2 percent target, some analysts are concerned that the central bank's current stance could end up upending the labor market. Fed officials have signaled during the last month that they would react to a suddenly weakening labor market by cutting rates, which are currently at a multi-decade high.
Fed policymakers will meet later this month and again in September to set rate policy. Some investors and financial analysts reacting to June's jobs numbers said officials should not risk waiting too long.
“Labor market conditions are cooling,” said Neil Dutta, head of economic research at Renaissance Macro Research, a financial firm. “The commitments for the Fed have changed. If they don't cut this month, they should send a strong signal that a cut is coming in September.”
As the financial world waits for the next move, American households have continued to spend at a healthy, if somewhat subdued, pace. Last month, the Transportation Security Administration screened a record number of travelers at airports. Recent corporate earnings reports suggested that consumers, while more discerning than before, remained in good shape overall. Since the beginning of the year, the stock market has hit new highs, posting an impressive 17 percent return.
In many ways, the financial picture for American households is brighter than it was before the pandemic. At the end of 2019, US households had approximately $980 billion in “verifiable deposits” — the sum of cash assets in checking, savings and money market accounts. Now, the figure is at more than 4 trillion dollars.
While this wealth is concentrated towards the top of the generalthe gains in wealth and income have generalized state. The net worth of the bottom 50 percent of households, about $1.9 trillion on the eve of the pandemic, is now around $3.8 trillion. And for non-managerial workers (roughly eight out of 10 people in the workforce), wage growth has been much stronger than the overall average.
For privately held companies with fewer resources than large corporations, the economy of the past four years has presented a sometimes nauseating rollercoaster of challenges. That's been the case for brothers Mazen and Afif Baltagi, who own several hospitality businesses in the Houston area — an event space, a sports bar and a few coffee shops — along with some investment partners.
The crowds aren't quite what they were in 2021 and 2022, when people were more euphoric. And “it's not an easy business,” Mazen Baltagi said, especially since food, labor and construction costs have increased and largely remained high.
Still, from his perspective, “Texas is booming.”
In this interest rate environment, “banks don't really lend to restaurants right now,” he added, but he said he and his brother were working around that, making enough sales, and with new partners of capital, to undertake the next expansions. .
This combination of adaptability and profitability among businesses is a testament to the forces that helped the United States avoid the recession many experts expected. But surveys of business executives suggest many are waiting for the cost of credit to fall before plunging into new waves of hiring or capital investment.
The question now, it seems, is whether the Fed will cut interest rates in time to sustain the expansion. Reports of additional consumer price data will be crucial as the summer progresses.
Financial markets “just need the inflation data to cooperate,” said Samuel Rines, economist and macro strategist at WisdomTree, an investment management firm. “Then the game begins.”
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