WASHINGTON, July 7 (Reuters) – The U.S. economy added the fewest jobs in 2-1/2 years in June, but continued strong wage growth pointed to still tighter labor market conditions, making the Federal Reserve likely to raise interest rates again. Later this month.
A closely watched employment report from the Labor Department on Friday showed 110,000 fewer jobs were created in April and May, indicating that higher borrowing costs continue to weigh on businesses. Last month there was an increase in the number of people working part-time for economic reasons, in part because their hours were cut due to sluggish work or business conditions.
Still, the pace of jobs growth has been strong by historical norms and this week added to data showing an acceleration in services sector activity to suggest the economy is nowhere near a long-predicted recession.
“Wages numbers have weakened, but the labor market remains strong,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting. “The central bank’s work is by no means over. We are in a long battle against inflation, and nothing in today’s statement suggests otherwise.”
Nonfarm payrolls rose by 209,000 jobs last month, the smallest gain since December 2020, the firms’ survey showed. Economists polled by Reuters had forecast wages to rise by 225,000. This is the first time the payroll has missed expectations in 15 months.
Job growth in the first half of the year averaged 278,000 per month. The economy needs to create 70,000-100,000 jobs per month to keep up with the growth of the working-age population.
Employment growth is due in part to companies hoarding workers as the economy recovers from the fallout from the COVID-19 pandemic in 2021 and early 2022.
While high-paying industries such as technology and finance are purging workers, sectors such as leisure and hospitality and local government education are losing employees and experiencing rapid retirements during the pandemic.
Government employment increased by 60,000, boosted by a 59,000 increase in state and local government wages. Government employment is 161,000 below pre-pandemic levels.
Private payrolls rose by 149,000, the smallest gain since December 2020. Health care payrolls rose by 41,000, reflecting hiring in hospitals, nursing and residential care facilities, and home health care services.
Construction employment increased by 23,000. The housing market is showing signs of recovery after being hit by a rise in mortgage rates. The Fed has raised its policy rate by 500 basis points from March 2022, its fastest monetary policy tightening campaign in more than 40 years.
Employment in professional and business services also increased, although temporary help, a precursor to future hiring, fell by 12,600. Manufacturing wages rebounded modestly as the sector struggled to curb demand. However, retail jobs fell by 11,200.
Retirement and Hospitality Wages increased by 21,000. However, the pace has slowed since the first quarter. Demand may be slowing or businesses are having trouble finding workers, as noted in a June survey by the Institute for Supply Management, which showed that some services businesses were “unable to find qualified candidates for some open positions.”
Government data showed on Thursday that there were 1.6 job openings for every unemployed person in May. Leisure and hospitality employment is 369,000 below its pre-pandemic levels.
Stocks were mixed on Wall Street. The dollar fell against a basket of currencies as U.S. Treasury prices rose.
Strong wage gains
Average hourly earnings rose 0.4% after climbing the same range in May, as workers are still in short supply in some industries. That put an annual increase in wages at 4.4% in June, too high to match the central bank’s 2% inflation target.
The average work week rose to 34.4 hours in May from 34.3 hours. However, this is below the January average of 34.6 hours.
“Companies continue to retain their workers but not increase weekly hours,” said Selcuk Eren, senior economist at the Conference Board in Washington. “This is consistent with CEOs in a slowing economy choosing to hold on to workers with reduced hours rather than let them go for fear of future hiring difficulties.”
Labor hoarding is helping the economy stave off recession, but at the expense of productivity, which fell in the first quarter, and profit margins. Economists see companies using the ax as pressure on profits intensifies.
The household survey found the unemployment rate showed a rebound of 273,000 in employment, reversing a 310,000 decline in May. This is more than the increase in the number of people entering the labor force.
As a result, the unemployment rate fell to 3.6% in June from a seven-month low of 3.7% in May. The unemployment rate as of March 2022 is in the range of 3.4%-3.7%.
But the number of people working part-time for economic reasons rose by 452,000 to 4.2 million, partly reflecting an increase in those who cut hours due to sluggish work or business conditions.
The labor force participation rate, or the proportion of Americans of working age or looking for work, was unchanged for the fourth consecutive month at 62.6%. But the participation rate for 25-54-year-olds rose to 83.5%, up from 83.4% in May since 2002.
“While demand for workers remains unmatched, the labor shortages that employers sighed about a year ago have certainly eased some,” said Andrew Flowers, lead labor economist at Appcast. “This strong labor market has marginalized workers.”
Report by Lucia Muticani; Editing by Daniel Wallis, Chisu Nomiyama and Andrea Ricci
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