What labor market data says about the economy

The economy added 206,000 jobs last month, new government data shows, but unemployment surpassed 4% for the first time in more than two years.

O June Jobs Report, released Friday morning by the Bureau of Labor Statistics, showed slightly stronger hiring than economists expected, with analysts predicting gains of 200,000 nonfarm jobs. This still marked a slowdown since May, the level of which was revised downwards – from 272 thousand to 218 thousand.

The April level was also revised downward, showing that 111,000 fewer jobs were created during the previous two months than previously thought.

“The June increase in nonfarm payrolls was slightly higher than expectations, but the large downward revisions in April and May are the story,” said Kathy Jones, chief fixed income strategist at Charles Schwab. posted in X Friday. “The job market is slowing down.”

The U.S. labor market has for months defied long-standing forecasts of a sharper contraction. Instead, the outlook for workers remained generally robust, even as employers gradually slowed down their hiring. But the latest figures show that conditions are becoming more stringent.

Unemployment rose to 4.1% in June, unexpectedly breaking the historically low rate of 4% that had not been exceeded since November 2021.

Some of the biggest job gains last month came in government and healthcare, which added 70,000 and 49,000 positions, respectively. The “professional and business services” sector — a category that includes many technology functions — has remained largely flat throughout this year, the report said.

Workers’ wages continue to increase. Average hourly earnings increased 3.9% in June from the same month last year, still higher than before the pandemic – and still outpacing inflation – but at a slow pace.

“Right now we are seeing a labor market that is going through what I like to call a modulated cooling,” Nela Richardson, chief economist at payroll processor ADP, told reporters earlier this week. “It’s playing the right note at the right time.”

ADP’s own data on private sector hiring showed on Wednesday that just 150,000 roles were added in June, less than expected, driven largely by the leisure and hospitality industry. Other labor market indicators pointed to a steady slowdown in growth after intense hiring boosted job prospects and workers’ wages during the recovery from the pandemic.

On Wednesday, however, the Department of Labor reported that initial claims for unemployment benefits continued to trend upward, while ongoing unemployment claims reached their highest level since November 2021.

“While redundancy rates remain low, if you unfortunately lose your job it will become much more difficult to find a new role,” James Knightley, chief economist at global financial group ING, said in a note to clients this week.

In addition to the job market, the Institute for Supply Management this week released what Knightley called a “truly horrible” Purchasing Managers Index survey for June.

The number fell to 48.8 – below the forecast of 52.7 and a significant drop from the previous reading of 53.8. A reading below 50 is considered a sign of contraction in activity, and June was only the third time the index showed a contraction in the last 49 months – but it was the second such occurrence in the last three.

“Survey respondents report that business is generally flat or down,” ISM survey committee chairman Steve Miller said in a statement.

With the slowdown in business activity, inflation is also cooling down. Last week, the Federal Reserve’s preferred price growth indicator, the Personal Consumption Expenditures price index, rose 2.6% year-on-year in May. This was the lowest annual rate since March 2021.

In comments this week, Fed Chairman Jerome Powell said risks to his inflation and employment goals have “returned much closer to balance.” In other words, the odds that the Fed will not act aggressively enough to return inflation to its 2% target are now closer, even with the odds that unemployment will rise as a result.

“The longer the Fed maintains its high interest rate strategy, the greater the risk that it will over-strangle the economy,” Moody’s chief economist Mark Zandi told NBC News ahead of new BLS data on Friday. -fair. “We’re starting to see more claims and layoffs and contractions in the job market. That’s a growing concern.”