Hiring rebounded strongly in June as employers added 224,000 jobs, easing recession fears and posing a dilemma for a Federal Reserve that’s expected to cut interest rates later this month.
The unemployment rate ticked up from its 50-year low of 3.6% to 3.7%, the Labor Department said Friday. Payroll gains for May were revised down to 72,000 from 75,000.
Economists surveyed by Bloomberg expected 160,000 job gains.
“Today’s jobs report shows the U.S. economy continues to create jobs at a strong pace even as we enter the longest period of economic expansion on record,” said Tony Bedikian, whose Global Markets team at Citizens Bank helps companies manage interest rate, foreign exchange and commodity price risks. “The bounce back in the June jobs number may splash cold water on the notion of an imminent Fed rate cut. We will have to see whether the equity markets can shrug that off when balanced against other macroeconomic factors, such as the hope of a China trade truce.”
Economists eagerly awaited the June jobs report after the weak May total stirred recession concerns. Another anemic showing would have amplified those worries but this robust performance underscores that the May number overstated an anticipated cooling in hiring.
Payroll gains are expected to moderate from a monthly average of 223,000 in 2018 to about 160,000 this year as the effects of federal tax cuts and spending increases fade and the low unemployment rate makes it harder to find qualified workers. But a more dramatic slowdown could fuel fears that the trade conflict is having an even bigger impact on hiring or that an economic downturn may be on the horizon.
The Fed, meanwhile, has signaled that it could lower its key short-term interest rate as soon as this month to head off a possible recession amid the Trump administration’s trade war with China and a slowing global economy. Markets have priced in a 100% chance of at least a quarter-point rate cut at the Fed’s July 30-31 meeting.
This healthy jobs report, however, could give the Fed pause.
Wage growth picks up
Average hourly earnings rose 6 cents to $27.90 after a 9-cent increase in May. The average annual gain remained unchanged at 3.1%.
Yearly pay increases began topping 3% in the second half of 2018, but haven’t accelerated beyond that and had edged down recently. That tempers gains for workers, but allows the Fed to lower rates without worrying about a pickup in inflation.
Stronger pay increases, on the other hand, could pose a dilemma for a Fed that now seems more inclined to reduce rates in response to the trade fight and slowing economy.
Industries that are hiring
Professional and business services led the job gains, with 51,000. Health care added 35,000 jobs; transportation and housing gained 24,000 job; and construction increased by 21,000 jobs.
Manufacturing, which has been hurt by a slowing global economy and the trade conflicts, added 17,000 jobs after four months of little change. The industry is averaging 8,000 jobs per month this year, down from 22,000 in 2019.
Mining, wholesale trade, retail trade, information, financial activities, leisure and hospitality, and government, showed little change from May.