Payroll job growth at 209,000 in June was a bit below the consensus, according to a survey of employers from the Bureau of Labor Statistics. In addition, there were large downward revisions of 110,000 to job growth both in May (to 306,00 from 339,000) and April (to 217,000 from 294,000) combined. Over the last three months, the economy has added 244,000 payroll jobs per month, on average, still well above the economy’s long-run potential but down from 312.000 new payroll jobs per month in the first quarter.

Employment in a survey of households (different from the survey of employers) rebounded by 273,000 in May, after falling by 310,000 in June. The labor force, the number of adults working or looking for work, rose by 133,000 in June, with the labor force participation rate, the share of adults in the labor force, steady at 62.6%. The combination of a 273,000 rise in household jobs and a smaller rise of 133,000 in the labor force pushed the June unemployment rate down by 0.1 percentage point to 3.6%.  Although the labor force participation rate has risen slightly in 2023, it remains below the 63%+ rate prior to the pandemic, and the labor market is structurally tighter now than it was then.

Goods-producing industries added 29,000 jobs in June, with gains in construction of 23,000 and a gain of 7,000 manufacturing jobs. The increase in construction employment comes despite higher interest rates that are weighing on that industry, in particular on the residential side. Private services-providing industries added only 120,000,000 jobs in June, with increases of 73,000 in education and health services, 21,000 in professional/business services, and 21,000 in leisure/hospitality services. Government employment rose by a large 60,000 in June.

Average hourly earnings rose a “hot” 0.4% in June for the third straight month. On a year-ago basis, wage growth held steady at 4.4% in June. The persistent rapid rise in wage growth is unwelcome news for the Fed, which remains very concerned about inflationary pressures from wage growth that remains much faster than the 3.5% pace consistent with the central bank’s inflation target of 2%. Also, the length of the average workweek moved up 0.1 hours to 34.4. Combined with the rise in employment, this resulted in a 0.4% rise in total hours worked in June, after a 0.1% decline in May.

The labor market remains disconcertingly strong. The June employment report indicates a moderation in payroll job growth but more hours worked at higher average wages means workers’ income rose by a solid 0.7%. This is strong support for continued strength in consumer spending this summer, especially on travel, entertainment, and dining-out.

The overall takeaway from the June report is that job growth is moderating but still running above the economy’s long-run potential and inflationary pressures are easing only slightly, despite aggressive Federal Reserve interest rate hikes since March 2022 in an attempt to cool off economic growth and the labor market. The strong June report makes it much more likely that the Federal Open Market Committee will raise the Fed funds rate by 25 basis points at its next meeting on July 26. Yesterday, the futures market was pricing in a 92% probability of an increase in the Fed funds rate at that meeting, and that probability rose to 95% after this morning’s jobs report.

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