The US economy added far more jobs than expected in June, the government’s hotly-anticipated monthly report showed.
The headline print, 372,000, easily topped the 265,000 forecast and came within shouting distance of the highest estimate from more than six-dozen economists surveyed.
Revisions trimmed 68,000 from April’s headline and 6,000 from May’s, leaving an almost uniform pace of job gains over the last four months (figure below).
The robust figures were amenable to a “good news is bad news” interpretation by nervous markets, especially in the context of more hawkish commentary from Jim Bullard and sidekick Christopher Waller, who suggested the Fed may indeed lean towards another 75bps rate hike later this month.
At the same time, given pervasive recession fears, it’s possible some investors will take solace in the numbers to the extent they suggest the world’s largest economy hasn’t rolled over entirely just yet. But, again, that interpretation only works until you consider the read-through for Fed policy. A hot labor market is seen as a contributor to generationally high inflation and policymakers are keen to short circuit the dreaded wage-price spiral. If jobs growth is robust and wage growth continues to run well above levels seen consistent with 2% inflation, the Fed will be inclined to raise rates “expeditiously,” to employ the Committee’s new favorite adjective.
Speaking of wage growth, average hourly earnings came in slightly hotter than expected on an annual basis at 5.1% versus 5% seen. The MoM print was in line. Both the annual and monthly readings for May were revised higher.
The participation rate ticked lower, which, for lack of a better way to put it, isn’t a positive development for anyone, really. I’m not sure there’s a silver lining to that. “The narrative had been that falling equity markets would likely lead to some people who had taken early retirement to re-appraise their situation and return to work,” ING’s James Knightley said Friday. “This isn’t happening (at least not yet) and suggests that companies will continue to struggle to find workers with the right skill sets required.”
The unemployment rate stuck at 3.6%. The Fed sees it rising to 4.1% over two years as rate hikes slow the economy and inflation recedes. Many economists find that implausible. Most commentators, including former officials, believe that unless economic orthodoxy is now totally irrelevant, the unemployment rate will need to rise far higher than 4.1% in order to bring down inflation absent sustained, across-the-board declines in commodity prices, a resolution to myriad supply chain hangups and, relatedly, a cessation of hostilities in Ukraine and a relaxation of China’s “zero COVID” policies.
The key leisure and hospitality sector added 67,000 jobs in June, an underwhelming showing. Food services and drinking places accounted for the lion’s share at 41,000.
Employment in the sector remains down by 1.3 million jobs from pre-pandemic levels, or nearly 8% (figure above). At this point, it’s safe to say the economy isn’t going to recoup the remainder of those jobs this cycle. Or maybe ever. That part of the US services sector is permanently impaired.
Private payrolls were far stronger than expected in June at 381,000 versus an estimated 233,000. The highest forecast was 320,000. The household survey showed the second decline in employment in three months, a drop of 315,000.
Overall, there was nothing in June’s NFP report to dissuade the Fed from delivering another 75bps hike increment later this month if that’s their preference. Raphael Bostic, whose allusion to a possible September “pause” in the hiking cycle sparked all manner of debate in May, said Friday that the jobs report shows the US economy is strong. Although the “first signs” of a slowdown are evident, Bostic “fully” supports a 75bps hike at the July meeting. The Fed, he said, can move 75bps this month and not do any “protracted” damage.
More ammo for the “face savers” on the board. Don’t fight the Fed!
I get the sense of ongoing economic resilience, despite the headwinds. I’m guessing it will persist, despite the Fed’s 75 basis points.
My memories of past economic downcycles include slow, but massive train wrecks in the worst cases. “Normally” downcycles at least include a rollover across the economy. But this downcycle seems to be different. There’s genuine, ongoing strength. Sure, in reality economic times vary in character. Perhaps I’m impatient for the rollover. Maybe. And maybe it’s just my opinion, but the ground beneath this economy feels different.
I am concerned about the growing gulf in our society between those who are financially secure from month to month, and those who are less secure in their ability to own a home, pay the rent, and eat. I’m not worried about my own state of affairs. My stocks are down, but they’re resilient. And I have capital.
I reckon there are a lot of people like me, a good proportion, who are simply comfortable with their financial state and investments, despite the expected economic downcycle. We are a country of haves and have-nots. But the gulf grows wider and deeper as we speak.
I have always found mystery in the interweaving impacts and influences between politics and economics. The fact that I never studied either discipline likely accounts for my lack of insight to fully understand them. But we just lived through six years of political chaos in the form of Donald Trump and his wacked-out legion of deranged followers.
Capitalism is a system of winners and losers. Are our economy and politics today setting the scene for broader discord and disassociation across the American body politic by facilitating deeper economic divides? It’s a risk. Can the American political system be sustained in the midst of this? I guess we need to roll the dice to find out. But in the meantime, I’m cheering on the Jan 6 Select Committee, which enables a measure of confidence.
The solutions to our problems do not lie with the FOMC. We need more immigration, child care, public health and health care reform to make working more attractive to those staying home and living in the USA along with new residents to increase the labor supply. Demand management is definitely suboptimal and not the major problem here. Supply chains are an issue as well, but they seem amenable to incremental reform and time healing those wounds. And at some point NATO is going to need to address the malign influence of Russia. I see greater involvement in NATO there as a necessary evil- Russia is a third world oil and gas giant with nukes. It is causing havoc far above its real importance in the world. It is time to call Vlad’s bluff.
The idea that the US is a country of haves/have nots is inaccurate. It is a country of haves/have mores. Sometimes much much mores.
Any conversation about fixing our problems must start from the reality that even poor people here are much wealthier than they’ve ever been.
This isn’t true. Sorry, but it just isn’t. On multiple levels, it’s manifestly false.
I cannot emphasize enough how incorrect the comment above is. There are pockets in America of Third World-style poverty. In Appalachia, for example. Our low-income housing projects are war zones in some cities. The US ranks astoundingly bad on any number of relevant metrics, not just compared to rich countries, but relative to some emerging markets too. This is absolutely a “haves and have nots” society. The idea that poor people are “wealthy” is unfathomably out of touch, unless by “wealthier” you mean they have access to modern amenities that simply didn’t exist a century ago.
I have to agree with Mr H: in England (or France or Germany or Japan etc) the poor complain while in government housing and knowing medical care is available. Their children will be educated including University if they have the aptitude.
The “have nots” in the US sleep on streets and die of hunger and disease. The working poor live day to day knowing there’s no safety net.
…and the solution to our stagflation problem is more “have nots” and working poor through yet another Fed induced recession. Does anyone out there have an extra blue pill?