Despite Recession Fears, US Added 372,000 Jobs in June, Topping Estimates

The U.S. economy added 372,000 jobs in June, above the market estimate of 250,000. Although job growth exceeded expectations, the cumulative job gains for April and May are 74,000 lower than previously reported.

Economists predict job growth will slow in the coming months as recession fears grow.

Nonfarm payroll employment grew 372,000 in the month, compared to 384,000 in May, according to data released by the Bureau of Labor Statistics (BLS) on Friday. The unemployment rate remained unchanged at 3.6 percent.

Professional and business services, leisure and hospitality, and health care all had notable job growth last month.

Average hourly earnings edged up 0.3 percent month-over-month, while annualized hourly early earnings increased by 5.1 percent. Wage growth is less than the 8.6 percent inflation rate, meaning that employees are losing money as their expenditures rise faster.

The labor force participation rate dropped slightly to 62.2 percent in June, remaining below pre-pandemic levels.

Private-sector employment has recovered the net job losses caused by the pandemic and is 140,000 jobs higher than it was in February 2020, while government employment is 664,000 jobs lower, according to the new data.

Education and health services employment climbed the most in June, with 96,000 new jobs.

Employment in professional and business services rose 74,000. And leisure and hospitality generated 67,000 jobs, as expansion in food services and drinking places continued.  However, compared to pre-pandemic levels, the number of people in leisure and hospitality is down 1.3 million, or 7.8 percent.

The growth in total nonfarm payroll employment for April was revised downward by 68,000 to 368,000, while May’s change was revised downward by 6,000 to 384,000. According to BLS, following these revisions, employment in April and May was 74,000 lower than originally reported.

President Joe Biden touted the jobs report and the recovery in the private sector employment in a statement on Friday.

“The historic strength of our job market is one reason our economy is uniquely well positioned to tackle a range of global economic challenges–from global inflation to the economic fallout from Putin’s war.”

Recent statistics from the labor market have shown a mixed picture and this is common when an economy is shifting, according to economist Robert Genetski.

“The job data show no significant slowdown in the labor market. These data are inconsistent with some of the business surveys, which had pointed slow or no growth in June,” Genetski wrote in a note.

“Mixed data often occur when an economy is transitioning,” he added.

According to him, these job gains make it more likely that the Federal Reserve will raise the target interest rate by 0.75 percentage points later this month.

Signs of a Slowdown

The red-hot labor market has shown signs that it could be beginning to cool down according to a series of employment data released this week.

Initial jobless claims reached a seven-month high of 235,000 in the week ending July 2, topping the market forecast of 230,000. The four-week average, which removes week-to-week volatility, has climbed steadily every week since the beginning of April. Continuing jobless claims also increased to 1.375 million in the week ending June 25.

The number of job openings eased to 11.254 million in May, down from 11.7 million in April, a previous BLS data highlighted (pdf). The number of Americans who quit their jobs in May also dipped slightly to 4.27 million, down from 4.327 million in the previous month.

Moreover, U.S. companies announced plans to slash more than 32,500 jobs from their payrolls last month, the highest number since February 2021. This was also up nearly 59 percent from the same time a year ago.

“Employers are beginning to respond to financial pressures and slowing demand by cutting costs. While the labor market is still tight, that tightness may begin to ease in the next few months,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas, Inc., in a statement.

Scott Anderson, the chief economist at Bank of the West Economics, examined the latest Institute for Supply Management (ISM) non-manufacturing purchasing managers’ index (PMI), which showed a contraction in employment, falling from 50.2 in May to 47.4 in June. This comes after the ISM’s manufacturing PMI also revealed a decline in employment, sliding from 49.6 in May to 47.3 in June.

While large companies are starting to trim their payrolls, small businesses are decreasing the size of their workforce in vast numbers. According to ADP data in May, small businesses cut 91,000 jobs.

Deutsche Bank is worried that broad-based weakness across the U.S. economy could seep into the labor market this year.

“If that happens, a so-far unemployment-less recession would likely turn into a more traditional contraction that complicates the Fed’s tightening plans,” the bank wrote in a research note earlier this week. “This dynamic could well short-circuit the Fed’s hiking cycle before it reaches our current terminal rate expectations.”

This level of weakness in the labor market has not been entirely unexpected.

Since the Federal Reserve started raising interest rates, economists had warned that it would inevitably douse the sizzling jobs market. Typically, a rising-rate environment diminishes business activity, meaning companies may hire fewer workers or provide pink slips to employees. Fed Chair Jerome Powell recently said at a European Central Bank (ECB) forum in Sintra, Portugal, that there was “no guarantee” the institution could fight soaring inflation without hurting the job market.

Bryce Doty, senior portfolio manager at Sit Fixed Income, contends the Fed does want fewer jobs.

“Every member of the Fed is predicting that raising interest rates will result in a higher unemployment rate and will ultimately reduce inflation,” he wrote in a research note Thursday. “Prevailing common sense is that profound labor shortages have led to shortages of materials and services across a broad swath of the economy which has fueled inflation. Expanding the country’s workforce is the obvious solution.”

According to the Fed’s Summary of Economic Projections (pdf), which was updated during last month’s Federal Open Market Committee (FOMC) meeting, the median unemployment rate forecast is 3.7 percent for 2022, 3.9 percent for 2023, and 4.1 percent for 2024.

Meanwhile, the increasing base case for many Wall Street firms and economists is that the United States is on the brink of a recession. Some believe, including the Wells Fargo Investment Group, that the United States is already in a recession, telling Bloomberg that the jobless rate could also be higher than its previous estimates. This year, the unemployment rate could rise to 4.3 percent and then 5.2 percent by the end of 2023, the group projected.

If employment conditions deteriorate amid a recession and inflation, the situation for millions of Americans could “become disastrous,” says Jill Gonzalez, an analyst at WalletHub, a personal finance publication.

“A potential recession would negatively affect unemployment significantly. Losing a job is never good, but when you combine it with such high inflation it can really become disastrous,” she said in a statement. “Even Americans with jobs right now are struggling to afford essentials like food and gas. If those numbers do climb while more people become unemployed, we might see an economy in deep recession.”

In the first quarter, the economy contracted 1.6 percent. The Atlanta Fed Bank’s GDPNow estimate suggests the economy declined 1.9 percent in the second quarter.

From The Epoch Times