Halfway through the year and four years since the coronavirus pandemic-induced recession, the U.S. hiring engine is still chugging along, even as signs of a slowdown grow.
The Labor Department said Friday that employers delivered another strong hiring surge in June, adding 206,000 jobs, marking the 42nd consecutive month of job gains.
At the same time, the unemployment rate rose 0.1 percentage point to 4.1% from 4%, the first time it has exceeded 4% since November 2021.
The payroll gain was slightly stronger than most analysts had expected, but the totals for the past two months were revised downward and the rise in the unemployment rate was a surprise, causing many economists and investors to shift from full confidence in the job market to some concern.
“These are good numbers,” said Claudia Thurm, chief economist at New Century Advisors, but cautioned against interpreting the report in an overly negative light.
But “the importance of the unemployment rate is that it actually tells us a little bit about what's going to happen to us going forward,” she added, noting that the unemployment rate has been trending up since hitting a half-century low of 3.4 percent early last year.
Wage growth is also slowing: Average hourly earnings rose 0.3% in June from the previous month and 3.9% from a year earlier, up from a 4.1% increase in May. But the good news for workers is that wage growth has outpaced inflation for about a year.
Market reaction to the report on Friday was muted, with stocks little changed, but Treasury yields fell, reflecting traders' growing confidence that the Federal Reserve will start cutting interest rates.
The benchmark interest rate, which was near zero at the start of 2022, has now been above 5% for more than a year as the Fed tries to tame inflation. The impact on lending across the economy is lasting longer than many businesses, or households looking to buy a home or a car, expected.
Most economists expect job and wage growth to slow further until the Fed eases credit conditions. Signs that a slowdown is on the rise.
While the number of layoffs is near an all-time low, an indicator known as the employment rate shows the number of monthly hires as a percentage of the total number of employed people. — It's been a big drop, which means that relatively few people have lost their jobs and that new opportunities are generally more difficult to find.
Roughly three-quarters of the job gains in the June report were in health care, social assistance and government. Several other industries saw only small gains and some, such as manufacturing and retail, saw overall job losses.
Much of the government hiring is part of a long-awaited catch-up for state and local governments, which have lamented staffing shortages and have only recently recovered to pre-pandemic employment peaks, and an aging U.S. population has consistently boosted demand for health care workers and other caregivers.
But economists tend to be more confident when the bulk of job gains come from sectors that show more private-sector strength.
“Job advertising is declining,” said Nick Bunker, director of economic research at jobs site Indeed.
This may partly explain why the number of long-term unemployed (people who have been unemployed for more than 27 weeks) is now above the 2017-2019 average.
With inflation at 2.6%, close to the Fed's 2% target, some analysts worry the central bank's current stance could upend the job market. Fed officials over the past month have signaled their intention to cut interest rates, now at their highest in decades, in response to a sharp weakening of the labor market.
Fed policymakers are scheduled to meet later this month and again in September to decide on interest-rate policy. Reacting to the June jobs report, some investors and financial analysts say officials shouldn't risk waiting too long.
“Labor market conditions are cooling,” said Neil Datta, head of economic research at financial firm Renaissance Macro Research. “The trade-off for the Fed has changed: if they don't cut rates this month, they should send a strong signal that they will cut rates in September.”
As the financial world waits for the next move, American households continue to spend at a healthy, albeit somewhat restrained, pace. Last month, the Transportation Security Administration screened a record number of travelers at airports. Recent corporate earnings reports suggest that consumers are becoming more picky, but overall they remain strong. Since the start of the year, the stock market has reached new highs, posting an astounding 17% return.
In many ways, the economic situation for American households is brighter than it was before the pandemic. At the end of 2019, American households held roughly $980 billion in “current” cash assets in checking, savings, and money market accounts. Today, that figure is more than $4 trillion.
While wealth remains concentrated at the top overall, gains in wealth and income have been widespread: The bottom 50% of households had a net worth of about $1.9 trillion on the eve of the pandemic; today it's about $3.8 trillion. And wage growth for nonmanagement workers (about 8 in 10 of the workforce) has far outpaced the overall average.
The past four economic years have been a nauseating series of challenges for independently owned businesses with fewer resources than larger corporations. That was certainly the case for brothers Mazen and Afif Baltagi, who, with their investment partner, run a variety of hospitality businesses in the Houston area, including an event space, a sports bar and several cafes.
There aren't the crowds like there were in 2021 and 2022, when people were shopping more frantically. And with food, labor and construction costs soaring and generally staying high, “it's not an easy business,” Mazen Baltagi said.
Still, from his perspective, “Texas is booming.”
In this interest rate environment, “banks aren't lending much to restaurants right now,” he added, but he said he and his brothers have worked around that and are making enough sales and profits from new shareholders to undertake future expansion.
That combination of adaptability and profitability among companies is one example of the forces that helped the U.S. avoid the recession many experts predicted. But surveys of corporate executives suggest many companies are waiting for credit costs to fall before jumping in on a wave of new hiring and capital investment.
The question now seems to be whether the Fed will cut interest rates at the right time to keep the expansion going. Additional data reports on consumer prices will be important as the summer progresses.
“Financial markets just need the inflation data to cooperate,” said Samuel Lines, an economist and macro strategist at investment management firm WisdomTree. “Then the game is decided.”