as Unemployment Rate Increases Slightly

• The June jobs report was what the Federal Reserve wants to see, with slowing job growth and wage growth. 

• The economy added 206,000 jobs in June, with downward revisions to job growth in April and May.

• The unemployment rate rose slightly to 4.1% in June. The labor force participation rate also rose. 

• Wage growth slowed in June, although it is still running a bit hot for the Fed’s inflation goal. 

• PNC expects two cuts in the fed funds rate in late 2024.

The U.S. economy added 206,000 jobs in June, according to a survey of employers from the Bureau of Labor Statistics. This is close to the consensus of 200,000, and somewhat below PNC’s forecast of 225,000. Job growth in May was revised substantially lower to 218,000 from 272,000, while April job growth was also revised much lower to 108,000 from 165,000. Over the past three months the economy has added 177,000 jobs on average, down from 250,000 on average in 2023, and close to the economy’s long-run potential. 

The private sector added 136,000 jobs in June, with government employment growth of 70,000. Private-sector job growth has slowed in 2024, with average gains over the past three months of 146,000, down from an average of 192,000 for all of 2023. That being said, the share of employment in the private sector is still higher than it was before the pandemic. 

The unemployment rate increased to 4.1% in June from 4.0% in May and 3.9% in April. The unemployment rate is still historically low, but is up from a decades-long low of 3.4% in early 2023 and from 3.7% in early 2024. Employment in a survey of households (different from the survey of employers) rose by 116,000 in June. In recent months job growth in the household survey has been running lower than in the employer survey. The household number is more volatile, but could be signaling that the employer number is overstating job growth in 2024. 

The labor force—the number of adults either working or looking for work—increased by a larger 277,000 in June, and so the unemployment rose even with more people reporting that they were working. The labor force participation rate—the share of adults either working or looking for work—rose to 62.6% in June, from 62.5% in May. The labor force participation rate has been between 62.5% and 62.8% for more than a year, below the 63%+ rate before the pandemic; this has resulted in a structurally tighter labor market post-pandemic. 

Average hourly earnings increased 0.3% in June, a slowing from 0.4% growth in May (unrevised). On a year-ago basis average wage growth slowed to 3.9% in May (3.86% before rounding) from 4.1% in May (4.05%). Wage growth was almost 6% in early 2022 as businesses competed for workers, and is gradually easing as the labor market continues to normalize after the pandemic. 

The average workweek was 34.3 hours in June, unchanged from May. With more workers, higher wages, and an unchanged workweek, labor market earnings were up 0.4% on the month (0.36% before rounding). With prices expected to increase 0.1% for June (CPI to be released July 11), workers enjoyed a nice increase in their after-inflation earnings that will support consumer spending growth in the near term. 

Private goods-producing industries added 19,000 jobs in June, including 27,000 in construction. Manufacturing employment fell by 8,000 as high interest rates remain a drag. Private services-providing industries added 117,000, with most of those coming in health care and social assistance (82,000). Government employment increased by 70,000 in June. 

The June jobs report confirms that the U.S. labor market is softening in 2024, but remains very good. Job growth is slowing to a more sustainable long-run pace; the unemployment rate is rising but is still very low, indicating a bit more slack; and wage growth continues to gradually ease. Wage growth needs to be around 3.5% to be consistent with the Federal Reserve’s 2% inflation objective, and so this is the type of jobs report that the central bank is looking for. And while job growth is slowing, it remains positive and wages continue to increase more rapidly than prices; this is supporting growth in consumer spending, and so the current economic expansion will continue. 

The June jobs report supports PNC’s forecast for cuts in the fed funds rate at the Federal Open Market Committee’s November and December meetings, after the election. But a rate cut is still possible in September, depending on the incoming data on inflation and the labor market. Two 25 basis-point rate cuts later this year would take the fed funds rate to a range of 4.75% to 5.00% at the end of 2024.