U.S. Job Market Slows in June with Healthcare and Government Jobs Leading Gains

United States Job openings dropped in May but still outnumber workers' availability by 2 to 1

U.S. job growth slowed in June, with healthcare and government jobs making up most of the gains. The unemployment rate hit a 2.5-year high, signaling potential interest rate cuts by the Federal Reserve.

United States, Bollywood Fever: U.S. employment saw solid gains in June, but with a notable twist: healthcare and government jobs comprised about three-quarters of the payroll increases. Despite this growth, the unemployment rate rose to a 2.5-year high of 4.1%, indicating a cooling labor market that may prompt the Federal Reserve to consider cutting interest rates soon.

The Labor Department’s closely watched employment report revealed that the economy created 111,000 fewer jobs in April and May than previously estimated, suggesting a slowing trend in payroll growth. Annual wage growth also slowed to its lowest pace in three years amid an expanding labor pool, further signaling potential labor market weaknesses.

United States Job openings dropped in May but still outnumber workers' availability by 2 to 1

Approximately 277,000 people joined the labor force in June, contributing to the jobless rate’s rise from 4.0% in May to its highest level since November 2021. This increase, combined with a moderation in prices in May, may bolster Fed policymakers’ confidence in the inflation outlook, paving the way for an easing cycle starting in September.

“We now have definitive evidence of labor market cooling with a somewhat alarming rise in the unemployment rate in recent months,” said Scott Anderson, chief U.S. economist at BMO Capital Markets. “This should give policymakers ‘more confidence’ that consumer inflation will soon return to the 2.0% target on a sustainable basis.”

Job growth averaged about 222,000 per month in the first half of this year. Analysts estimate that the economy needs to create between 180,000 and 200,000 jobs per month to keep up with the growth in the working-age population, considering a recent surge in immigration.

The Quarterly Census of Employment and Wages (QCEW), a lagging measure of employment, suggested a much slower pace of job growth through the fourth quarter of 2023 than payroll data indicated. The QCEW data, derived from reports by employers to state unemployment insurance programs, may not include unauthorized immigrants, who economists believe contributed to strong job growth last year.

In June, hiring continued to be driven by acyclical sectors like healthcare and state and local governments. Government employment surged by 70,000 jobs, the highest since December, bolstered by local government excluding education and state government jobs. Private payrolls increased by 136,000, with the healthcare and social assistance sector adding 82,400 positions. Construction payrolls rose by 27,000, but the retail and manufacturing sectors shed jobs. Professional and business services employment declined by 17,000, with temporary help jobs dropping by about 49,000, the most since April 2020.

“So far, we don’t see apocalyptic signs within the labor market, but investors should be wary when the labor market is supported by government payrolls,” said Jeffrey Roach, chief economist at LPL Financial. “The downward revisions to the previous two months are consistent with an economic slowdown.”

Wage Growth Slows

The 525 basis points worth of rate hikes from the Fed since 2022, along with the exhaustion of excess savings accumulated during the COVID-19 pandemic, are eroding demand. Traders of federal funds futures saw a roughly 77% probability of a rate cut at the Fed’s Sept. 17-18 meeting, according to CME Group’s FedWatch tool, with a rising chance of a second rate cut in December.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. Minutes from the central bank’s June 11-12 meeting showed policymakers acknowledged the economy appeared to be slowing and that “price pressures were diminishing.”

Average hourly earnings rose 0.3% last month after a 0.4% increase in May. Over the past year, wages increased 3.9%, the smallest gain since June 2021, following a 4.1% rise in May. Wage growth in the 3%-3.5% range is seen as consistent with the Fed’s 2% inflation target.

Despite the softer details, the employment report was consistent with continued economic expansion. However, the second straight monthly increase in the unemployment rate could be signaling a rise in joblessness. The household survey, which derives the jobless rate, showed employment rebounding by 116,000 in June, not enough to match supply. The unemployment rate has increased by six-tenths of a percentage point from a low of 3.5% last July.

The number of people experiencing long spells of unemployment increased by 166,000 to 1.516 million in June, but fewer people reported working part-time for economic reasons. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to 62.6% from 62.5% in May. The participation rate for prime-age workers, those aged 25 to 54, increased to 83.7%, the highest level since February 2002.

“The labor market is chugging along for now, but evidence is mounting that if it continues to slow down, it could stall,” said Nick Bunker, economic research director for North America at Indeed Hiring Lab.

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Nicholas Edwards

Nicholas Edwards is a passionate writer with a keen interest in sports and business news. With a knack for delivering insightful and engaging content, Nicholas keeps his finger on the pulse of the latest developments in these dynamic fields. His enthusiasm for both sports and business shines through in his writing, making complex topics accessible to a wide audience. Whether it's dissecting the latest game-changing play or analyzing market trends, Nicholas brings a fresh perspective and a wealth of knowledge to his articles. Email @ admin@bollywoodfever.co.in

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