‘Just’ 6.8 Million To Go!

The world’s largest economy added 850,000 jobs last month, the BLS said Friday.

The headline print was better than expected (figure below). The market wanted 720,000.

The above-consensus read on the US labor market came as a relief. Two consecutive months of disappointing headline payrolls underscored the persistence of labor market frictions and helped legitimize criticism of enhanced federal unemployment benefits, which some say are encouraging the jobless to remain on the proverbial sidelines, exacerbating worker shortages.

Revisions added 24,000 to May’s headline print, bringing the gain to 583,000. April was revised slightly lower. Private payrolls advanced 662,000, more than anticipated.

Leisure and hospitality accounted for 343,000 of June’s jobs gains (figure below). More than half of those positions were added in food services and drinking places.

Accommodation added 75,000 jobs, while arts, entertainment, and recreation chipped in 74,000. Employment in leisure and hospitality remains some 2.2 million short of pre-pandemic levels. Earlier this week, the latest ADP report showed a similar-sized gain for the sector, where private employers have added roughly 1 million jobs over the past three months.

Education contributed significantly to June’s headline beat, but the data is difficult to parse. Local government education added 155,000 jobs, state government education 75,000 and private education 39,000. “In both public and private education, staffing fluctuations due to the pandemic, in part reflecting the return to in-person learning and other school-related activities, have distorted the normal seasonal buildup and layoff patterns, likely contributing to the job gains in June,” the BLS said, adding that “these variations make it more challenging to discern the current employment trends in these industries.”

Manufacturing payrolls disappointed, rising just 15,000 against expectations for 25,000. ISM manufacturing’s employment subindex dipped into contraction territory in June, data out earlier this week showed.

Average hourly earnings printed in line — to the decimal. The MoM gain was 0.3% and the YoY gain 3.6%. The latter goes “a meaningful distance toward offsetting the recent decline in real wages as realized inflation remains decidedly stronger than anticipated,” BMO’s Ian Lyngen and Ben Jeffery said Friday, prior to release. “The risk that one-time incentives and wage increases to bring back sidelined workers becomes a durable trend has been widely debated and as long as labor participation is low, it’s difficult to ignore the potential for a durable trend higher,” they added.

The unemployment rate was 5.9%, up from May and higher than every estimate from 73 economists. That, despite an unchanged participation rate (61.6%).

It’s certainly possible to spin June’s NFP report as “just right,” to the extent it helped allay fears that the labor market is so distorted as to make recouping all the jobs lost to the pandemic exceedingly difficult, but not hot enough to meaningfully alter the timeline for Fed tightening.

“Further refinement of recovery and reflation expectations will largely be on hold over the summer months as investors await the autumn economic performance to further refine forecasts for the next leg of the post-pandemic rebound,” BMO’s Lyngen went on to say.

Of course, the usual caveat applies: Even with June’s gains, millions of Americans who were employed in February of 2020 remain MIA (figure below).