The US economy added 372,000 jobs in June, defying slowdown fears

The US economy was strong through June with broad-based hiring on a par with recent months, keeping the country out of recession even as wage inflation erodes and interest rates continue to rise.

Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate, at 3.6 percent, was unchanged from May and close to a 50-year low.

Washington and Wall Street have been eagerly awaiting the new data after a string of weaker economic indicators. Job growth for June exceeded economists’ expectations by about 100,000, providing some reassurance that a sharper slowdown has not occurred – at least not yet.

But the strength of the report, which also showed larger-than-expected wage gains, could give the Fed more leeway for harsh drugs to beat inflation. Now, all eyes will be on whether the Fed’s rate hike strategy will push the country into a very painful recession.

Employment growth over the past three months averaged 375,000, which is a solid showing although down from the monthly pace of 539,000 in the first quarter of this year. Employers have continued to hold on to workers in recent months, with initial jobless claims rising only marginally from their lowest level in March.

The private sector has now regained its pre-pandemic level of employment – an achievement the White House announced on Friday – although the level is still lower than expected in the absence of the pandemic. Other than the public sector, no broad industry lost jobs in June, on a seasonally adjusted basis.

“We have established our path to where we were pre-Covid,” said Kristian Lundblad, professor of finance at the University of North Carolina’s Kenan Flagler School of Business. “So this does not necessarily seem like a difficult situation, despite the fact that we are struggling with inflation and economic decline in some other dimensions.”

Strong demand for workers is also evident in the 11.3 million jobs that employers opened in May, a number that is still close to record levels and leaves nearly two jobs available for everyone looking for work. In this equation, any workers laid off because certain sectors are under pressure are more likely to find new jobs quickly.

The Department of Labor’s broader measure of labor force underutilization — which includes part-time workers who want more hours and people who are discouraged from looking for work — has fallen to its lowest rate since the household survey took its current form in 1994, a sign that employers have Labor Maximize their current workforce because recruitment is still difficult.

Employment in service industries led June’s gains, in line with a fall in spending on goods as consumers shifted toward experiences they had to give up while public health restrictions remained in place. Leisure and hospitality companies, still catching up to pandemic employment levels, added 67,000 jobs.

Government employment was an exception to the larger trend, falling by 9,000 jobs. 664,000 jobs were below the level they were in February 2020.

A vibrant job market has been particularly beneficial for historically marginalized groups: The unemployment rate for black Americans has fallen to 5.8 percent, still twice that for white people, but the lowest level since November 2019.

The healthy pace of employment stands in stark contrast to consumer and business surveys, which have fallen to alarmingly low levels in recent months. While popular perceptions of entering a recession seem far from the norm, rapid job growth in the first half of the year is unlikely to continue into the second half.

Sky-high prices are weighing on consumer spending. Savings are shrinking. The workforce remains constrained by aging demographics, low levels of immigration and barriers to employment — such as the availability of care for children and older family members — that keep many people on the sidelines.

In a worrying sign, the proportion of people in the prime of their careers – from 25 to 54 – working or looking for work in June fell to 82.3 percent from 82.6 percent, well below the pre-pandemic high of 83.1 percent.

The report contained indications that Covid-19 remains an ongoing concern, with 2.1 million people saying they were unable to work in June because their employer closed or lost business as a result of the pandemic, compared to 1.8 million in the previous month. Also, because inflation is still high, some people may fall back out of the labor market simply because it is too expensive to keep working.

This is the situation faced by 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 two-year-old after the price of gasoline and the cost of childcare outpaced his take home.

“Once the benefits and everything come out of your paycheck, it is literally less than those two things combined,” the lady said. Petersen said. “This makes no sense in mathematics.”

She said her husband might return to work when their youngest daughter enters school. But there is no guarantee that a glut of jobs will await him. The consultancy Oxford Economics predicts that the economy will add an average of just 65,000 jobs per month in 2023.

Business leaders report that while some supply chain issues have been alleviated, new orders are slowing. Whenever possible, employers automate tasks instead of hiring.

“Employers are becoming less anxious to fill those jobs as they watch the economy slow,” said Bill Adams, chief economist at Comerica Bank. “I would expect companies to likely walk slowly in filling vacancies before actually pulling open vacancies.”

Wage growth, while strong, was moderate in June, and was not enough to keep pace with prices, meaning those on lower incomes may have to choose what basic necessities they have to pay for.

Heading into the fall, a slowdown is expected first in the more rate-sensitive businesses, such as construction and manufacturing.

Andrew Wernick runs Industrial Plywood, a supplier of sawn lumber in Reading, Pennsylvania, which has raised wages significantly to compete for workers over the past year as demand for doorframes and cabinetry has soared. Now, as rising mortgage rates are driving down home sales, he’s not sure if he’ll be able to hold new hires until the end of the year.

“A lot of our customers are still working off the backlog, and there is no new work coming in at the front door,” El-Sayed said. Wernick said. “We are not quick to let people go if they are already trained – it is very difficult to replace them.”

Some industries that actively hired workers — such as those that benefited from high demand for goods in the early stages of the pandemic — are dealing with a return to typical purchasing patterns. For workers who have responded to the high wages offered by desperate employers, this can be a pain.

Figure A is the trucking industry, which has brought in thousands of drivers as freight rates have soared and headlines have announced a labor shortage. Reducing spending on goods means there isn’t enough merchandise to keep everyone on the road, said Kenny Faith, president of transportation data company ACT Research.

“The guys were just flocking to the market at the exact moment when the freight volumes rolled in,” El-Sayed said. Faith said. “Given how quickly the spot market collapses, we expect driver capacity to be reset more quickly.”

As the past two years have shown, unexpected headwinds can always emerge – a new type of coronavirus, another global conflict or natural disaster that puts supply chains back in turmoil.

However, the variable on the minds of most forecasters is the effect of the Federal Reserve’s interest rate policy on economic activity.

“I think it’s inevitable that we will see a slowdown,” said Kaelen Birch, chief US analyst at the Economist Intelligence Unit. “The question is whether the slowdown is manageable, or whether it turns into a crash.”

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