Jobs report gives labor market a yellow card
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Referee Danny Makkelie shows a yellow card during the match between the U.S. and Paraguay at the World Cup last month. (The U.S. won 4-1.) Photo: Alex Livesey; FIFA/FIFA via Getty Images
The job market entered the summer with less momentum than looked to be the case just a month ago.
Why it matters: Call it a yellow card for the labor market. Thursday morning's employment report doesn't undo three months of stronger hiring, but it does warn that the rebound is less durable than first thought.
- Hiring has remained concentrated in a handful of industries, leaving fewer opportunities for Americans looking to switch jobs or reenter the workforce.
What they're saying: "June's jobs report put a damper on the fireworks, coming in well below expectations and pointing to a labor market that's more fizzle than sparkle," Glassdoor chief economist Daniel Zhao wrote Thursday morning.
Driving the news: Payrolls rose by 57,000 in June, roughly half the gains that economists expected.
- New revisions also show that hiring was weaker than expected over the previous two months, with payroll employment revised down by a combined 74,000 jobs.
- Payroll gains averaged 111,000 over the past three months, down from 164,000 in May. That's well above the 33,000 pace a year ago, but suggests that the labor market's spring rebound has faded.
Zoom in: Fewer Americans were working in June, and fewer were looking for work — a combination that mechanically pushed the unemployment rate down a tick to 4.2%.
- Household employment fell by 507,000, while roughly 720,000 people left the labor force in June, driving the participation rate down 0.3 percentage point, to 61.5%.
- Fewer prime-age workers, those between 25 and 54, were working or looking for a job in June: The participation rate slid 0.6 percentage point, the biggest one-month decline outside the pandemic in at least a decade.
The big picture: Slower hiring, downward revisions, weaker labor force participation and a narrower mix of industries creating jobs leave economic policymakers with a more difficult question than they faced a month ago.
- It's unclear whether the uneasy mix of labor market factors in June was a blip or the start of a slower labor market phase.
- One notable exception to the report's softer tone was wages. Average hourly earnings rose 0.3% in June — the second consecutive month of acceleration — and 3.5% from a year earlier, though slower hiring in lower-paying industries may have lifted the average.
What to watch: Federal Reserve chairman Kevin Warsh said last month that the labor market's three-to-six-month trend mattered more than any single jobs report, while noting that the job market had been "moving in a good direction."
- Financial markets' outlook for the Fed barely budged after the report. One weaker report is not enough to push off expectations that the central bank might have to raise interest rates to contain too-high inflation.
- Traders now see a roughly 78% chance of at least one rate hike by year-end, down only modestly from about 83% before the jobs report, according to CME FedWatch.
