The U.S. economy propelled through June with widespread hiring at the same level as in recent months, keeping the country out of recession territory even as inflation eats away at wages and interest rates continue to increase.
Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate, at 3.6%, was unchanged from May and near a 50-year low.
Washington and Wall Street eagerly awaited the new data after a series of weaker economic indicators. Job growth in June beat economists’ forecasts by about 100,000, offering some reassurance that a deeper downturn isn’t in the works — at least not yet.
But the strength of the report, which also showed stronger-than-expected wage gains, could give the Federal Reserve more leeway for tough medicine to roll back inflation. Now, all eyes will be on whether the Fed’s strategy of raising interest rates is pushing the country into a recession that will inflict severe pain.
Employment growth over the past three months has averaged 375,000, a solid performance despite falling from the monthly pace of 539,000 in the first quarter of this year. Employers have continued to cling to workers in recent months, with initial jobless claims rising only slightly from their low point in March.
The private sector has now returned to its pre-pandemic employment level – an achievement announced by the White House on Friday – although the level is still below what would have been expected in the absence of the pandemic. Apart from the public sector, no major industry lost jobs in June, on a seasonally adjusted basis.
“We’re basically back to where we were before Covid,” said Christian Lundblad, professor of finance at the University of North Carolina’s Kenan-Flagler Business School. “So it doesn’t necessarily look like a dire situation, despite the fact that we’re struggling with inflation and economic decline in other dimensions.”
The strong demand for workers is also evident in the 11.3 million jobs employers had opened in May, a number that remains near record highs and leaves nearly two jobs available for every person looking for work. In this equation, any worker made redundant when certain sectors are strained is more likely to find a new job quickly.
The Labor Department’s broadest measure of labor underutilization — which includes part-time workers who want more hours and people who have been discouraged from looking for a job — has dropped to its lowest rate since the household survey took its current form in 1994, a sign that employers are maximizing their existing workforce as hiring remains difficult.
Employment in service industries led June’s gains, in line with a pullback in spending on goods, as consumers turned to experiences they had to forego while public health restrictions remained in place. Leisure and hospitality businesses, still catching up to pre-pandemic employment levels, added 67,000 jobs.
Employment in the public service was an exception to the general trend, with a decline of 9,000 jobs. That was 664,000 jobs below where it was in February 2020.
The buoyant labor market has been particularly beneficial for historically marginalized groups: The unemployment rate for black Americans has fallen to 5.8%, still nearly double that of whites, but is the lowest since November 2019.
The state of employment in the United States
Job gains continue to maintain their impressive pace, easing fears of an economic slowdown but complicating efforts to fight inflation.
The buoyant pace of hiring contrasts sharply with consumer and business confidence surveys, which have hit alarming lows in recent months. While widespread perceptions of being in a recession appear to be in error, the rapid job growth of the first half of the year is unlikely to continue into the second.
Exorbitant prices weigh on consumer spending. Savings are dwindling. The labor force remains constrained by aging populations, low levels of immigration and barriers to work – such as the availability of childcare and elderly family members – which keep many people on the sidelines.
In a worrying signal, the share of people in their prime – ages 25 to 54 – who are working or looking for work fell in June to 82.3% from 82.6%, well below the pre-pandemic peak by 83.1%.
The report contained signs that Covid-19 is still a lingering concern, with 2.1 million people saying they could not work in June because their employer closed or lost business as a result of the pandemic, against 1.8 million the previous month. Also, as inflation remains high, some people may withdraw from the labor market simply because it is too costly to continue working.
That’s the situation facing Megan Petersen, who supports her family of four in Spokane, Washington, with a full-time job in digital marketing and a side business selling jewelry. Her husband worked for the US Postal Service until last week when he quit to care for their 2-year-old child after the price of gas and the cost of childcare exceeded his net salary.
“Once the benefits and everything come out of your paycheck, it’s literally less than those two things combined,” Ms. Petersen said. “It doesn’t make mathematical sense.”
Her husband could return to work, she said, when their youngest daughter starts school. But there is no guarantee that an abundance of jobs will await it. Consulting firm Oxford Economics predicts the economy will create an average of just 65,000 jobs per month in 2023.
Business leaders report that while some supply chain issues have eased, new orders are slowing. Whenever possible, employers automate tasks rather than hire.
“Employers are less and less concerned about filling these job vacancies as they watch the economy slow,” said Bill Adams, chief economist at Comerica Bank. “I would expect companies to probably slow down vacancies before pulling vacancies.”
Wage growth, while strong, moderated in June, and it was not enough to keep pace with prices, meaning those on the lowest incomes may have to choose the needs of basis to pay.
As the fall approaches, slowdowns are expected first in the most interest-rate sensitive businesses, such as construction and manufacturing.
Andrew Wernick runs Industrial Plywood, a lumber supplier in Reading, Pa., which has raised wages dramatically to attract workers over the past year as demand for door frames and cabinets has increased. Now, with rising mortgage rates driving down home sales, it’s unclear whether they can keep those new hires through the end of the year.
“A lot of our clients are still working on backlogs, and no new work is coming up,” Wernick said. “We’re not so quick to let people go if they’ve already been trained – they’re so hard to replace.”
Some industries that have been hiring workers aggressively — like those that benefited from strong demand for goods in the early stages of the pandemic — are facing a return to more typical buying habits. For workers who have responded to higher wages offered by desperate employers, this can be painful.
Exhibit A is the trucking industry, which brought in thousands of drivers as freight rates rose and headlines proclaimed a labor shortage. Kenny Vieth, president of transportation data firm ACT Research, said reduced spending on goods meant not enough freight to keep everyone on the road.
“Guys had just flooded into the market at the exact moment cargo volumes plummeted,” Mr Vieth said. “Given how quickly the spot market has collapsed, we expect the driver ability reset to happen more quickly.”
As the past two years have shown, unpredictable headwinds can always emerge – a new variant of coronavirus, another global conflict or a natural disaster that puts supply chains back in turmoil.
The variable that concerns most forecasters, however, is the effect that the Fed’s interest rate policy will have on economic activity.
“I think it’s inevitable that we’ll see a downturn,” said Cailin Birch, chief US analyst for the Economist Intelligence Unit. “The question is whether this is a manageable downturn or does it turn into a meltdown.”