Job growth accelerated at a much faster pace than expected in June, showing that the mainstay of the US economy remains strong despite areas of weakness.
Nonfarm payrolls rose 372,000 in the month, better than the Dow Jones estimate of 250,000 and continuing a strong year for job growth, according to data from the Bureau of Labor Statistics on Friday.
The unemployment rate was 3.6%, unchanged from May and in line with forecasts. An alternative measure of unemployment, which includes discouraged workers and those taking part-time jobs for economic reasons, fell sharply, falling to 6.7 percent from 7.1 percent.
“The strong 372,000 increase in nonfarm payrolls in June appeared to make a mockery of claims that the economy is headed for recession, let alone already in recession,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Stocks opened slightly weaker on the news, while Treasuries were sharply higher. The 10-year Treasury yielded 3.06% around 9:30 a.m. ET. That was still below the 2-year yield of 3.103%, a relationship called an “inversion” that has historically been a reliable signal of a recession.
Strong wage growth, Federal Reserve on track for hike
June earnings saw a slight slowdown from May’s downwardly revised 384,000. The number in April was revised up to 368,000.
Average hourly earnings rose 0.3% for the month and were up 5.1% from a year earlier, the latter number slightly higher than the Dow Jones estimate of 5% and indicating that wage pressures remains strong as inflation accelerates.
The payrolls number likely means Federal Reserve officials are “likely to continue raising rates aggressively in the coming months,” Hunter added. Policymakers indicated a rate hike of 0.75 percentage points was likely at their meeting in July.
“Make big rate hikes when the economy is strong and the labor market can bear it,” Fed Governor Christopher Waller said on Thursday.
By sector, education and health services led job creation with 96,000 hires, while professional and business services added 74,000 positions. Other contributors include leisure and hospitality (67,000), healthcare (57,000) and transportation and warehousing (36,000).
Other sectors showing large gains included manufacturing (29,000), information (25,000) and social assistance (21,000). Government jobs fell by 9,000.
There was some discrepancy in the numbers: The headline job creation figure in the BLS establishment survey was strong. But the household survey showed a decline of 315,000, leaving the total number of jobs 755,000 below its level from February 2020 before the pandemic.
Watch the recession
The gains come despite the fastest rate of inflation since the early 1980s. Prices have soared at the pump and in the grocery store, as well as in almost every other aspect of everyday life.
To combat rising inflation, the Fed introduced a series of interest rate hikes aimed at slowing the economy without causing a recession. However, recent indicators show that growth has cooled significantly.
Inflation hit lower-income households particularly hard. Credit and debit card data from Bank of America showed that spending in the sector fell 1 percent year-on-year as of June 30, a potentially ominous sign for an economy that derives more than two-thirds of its growth from consumers.
Gross domestic product shrank 1.6% in the first quarter and is on track to shrink 1.9% in the second quarter, meeting the accepted definition of a recession. Slower spending and a sharp decline in private investment are responsible for much of the retreat.
The labor market is seen as a bulwark against the recession and June’s numbers show the employment pillar remains strong.
“The June jobs report was very strong, even stronger than expected. Job growth was well above consensus expectations, the unemployment rate held just above a decade low and wage growth was solid,” wrote Gus Faucher, chief economist at PNC Financial Services Group. “This very strong job growth clearly indicates that the US economy is not close to a recession in mid-2022.”
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