Job Growth Slows

The June employment report from the Bureau of Labor Statistics sends​ us into the holiday weekend with a mixed take on labor market conditions. The labor market is still expanding, but at a notably slower pace than earlier in the year.

Nonfarm payrolls increased by just 57,000 jobs in June, coming in below consensus expectations and down from a downwardly revised 129,000 increase in May. Moreover, payroll estimates for April and May were revised down by a combined 74,000, suggesting that momentum has weakened in recent months.

Looking beyond the headline number, the report’s details presented a mixed picture. The unemployment rate edged down to 4.2 percent in June from 4.3 percent in May, but the decline was driven in part by a sharp drop in the labor force participation rate, which fell to its lowest in nearly five years.

Wage growth remained moderate, with average hourly earnings of private sector workers rising 0.3 percent on a monthly basis and 3.5 percent on a year-over-year basis in June. This is a positive in that it indicates labor-cost pressures continue to ease. At the same time, it implies real income and thus household spending power will remain constrained in an environment of elevated consumer price inflation.

All told, the report suggests the labor market is losing momentum but not contracting and that broader economic conditions are slowing but not tipping into reverse. Although the implications are modestly dovish for monetary policy it is unlikely there will be a shift in Federal Reserve sentiment in favor of rate cuts any time soon. In fact, financial markets continue to expect the Fed’s next move will be an increase later this year.

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