Commentary on June Jobs Report by Dana M. Peterson, Chief Economist, The
Conference Board
NEW
YORK, July 5, 2024 /PRNewswire/ -- Payrolls rose
by a healthy amount in June following a robust gain in May. While
Q2 payroll additions were slower on average than in Q1 and in 2023,
hiring remains vigorous. Of course, a handful of industries are
driving the largest gains, but few companies are letting go of
workers and are still choosing to retain talent as labor supply
remains constrained. Consequently, wages remained elevated and a
continued threat to consumer inflation.
The unemployment rate ticked up to 4.1 percent in June as we
expected at this point in 2024 but remains near historical lows.
The jobless rate is likely to stay subdued going forward and below
the natural rate of 4.4 percent, again because companies are
holding onto workers. An aging workforce is constraining growth in
labor force participation, which ticked up only modestly in
June.
Meanwhile, the average number of hours worked held steady in
June and was roughly on par with levels experienced right before
the 2020 pandemic. This is a sign that there is no material stress
building up in the labor market.
Trusted Insights for What's Ahead™
- The modest cooling in the labor market in Q2, from raging to
robust, should be viewed favorably by the Fed.
- Weakening consumer demand, and consequently real GDP growth in
H1 2024, should have led to some calming in the labor market.
- Still, with no sign of collapse in the labor market, the Fed
can keep monetary policy restrictive to drive consumer inflation
back to the 2-percent target.
- We continue to anticipate the unemployment rate may max out
this year below the natural rate of 4.4.
- Moreover, consumer price inflation probably will stabilize at 2
percent in mid-2025, allowing 25 basis points of interest rate cuts
at each the November and December
2024 meetings.
Report Highlights
Nonfarm Payrolls increase at a healthy clip in
June
From the Establishment Survey, nonfarm payrolls rose by
a healthy 206,000 in June, after a downwardly revised 218,000-gain
in May. The usual suspects – government (+70,000) and healthcare
and social assistance (82,400) – were the primary drivers of
overall payroll additions in the month along with construction
(+27,000). These sectors continue to hire and seem to have elevated
demand for workers according to JOLTS data. Labor shortages,
especially for jobs requiring in-person work, continue to keep job
openings elevated compared to prepandemic levels.
Leisure and hospitality companies added 7,000 workers, and the
number of additions has downshifted in 2024 as the sector has
recouped most of the workers lost during the pandemic. Leisure and
hospitality had previously ranked among the industries driving most
of the monthly payroll additions over the January 2024 through March
2024 span.
Job gains were reported across many other industries, including
wholesale trade (+14,200), transportation and warehousing (+7,300),
information (+6,000), financial services (+16,000), and other
services (+16,000). There were some layoffs in manufacturing
(-8,000), retail (-8,500), and professional and businesses services
(-17,000). Professional and business services fell amid a 48,900
drop in temporary health services payrolls.
The labor market is cooling but only
moderately
Payrolls data reveal that the US labor market
cooled in Q2, after heady readings in 2023 and in the first few
months of 2024, but only moderately. The average gain in payrolls
over the April-June period was 177,000 after about 111,000 in
downward revisions over the April through May span. The Q2 average
number of payroll additions was lower than average gains of 251,000
in 2023 and 267,000 Q1 2004. Although Q2 hiring was slower than the
prior 15 months, more than 100,000 average monthly payroll
additions is quite strong. While GDP growth has slowed in the first
half of 2024 as consumers pulled back on spending and housing
activity remains weak, most people are still working.
The US labor market is holding up because businesses are
retaining workers. The "hoarding" largely reflects difficulty
finding qualified workers in some industries as Baby Boomers retire
and there are fewer younger experienced workers to replace them.
Additionally, as the US economy is softening now, companies are
disinclined to release workers, only to hire them back when
economic conditions improve at higher wage rates. This is because
companies remember the sting of wage spikes to draw workers back
into the labor market during the pandemic recovery. Indeed,
the hoarding behavior continues to depress demand for temporary
help workers, which are down year-over-year.
Average Weekly Hours worked signal no stress in the labor
market
The average number of hours worked were unchanged at
34.3 hours in June, matching the April and May readings. The number
of hours worked is also within the range of reported just before
the 2020 pandemic. This signals that companies are not reducing
hours in the face of rising labor costs.
Hours worked should be closely watched for any serious stress in
the labor market. While most companies seem keen to hold onto
workers, rising labor costs are straining bottom lines. Rather than
layoffs, firms may choose to cut hours to protect their margins.
This would be a clear signal that the labor market is under duress
and that offering fewer hours to workers will ultimately lead to
layoffs.
Average Hourly Earnings growth still elevated
Average
hourly earnings grew by 4.0 percent year-over-year in June matching
the rates reported in April and May. The annual rate of growth was
materially slower than 7.0 percent pace reported in March 2022, but still elevated compared to the
average of 2.4 percent year-over-year between the 2008-09 Great
Recession and the 2020 pandemic.
Goods wage growth slowed to 4.9 percent year-over-year but
remained well above the rates experienced before the pandemic. Good
industry wages continue to rise aggressively in the mining,
construction, and durable goods sectors. Services wage inflation
slowed to 3.6 percent year-over-year, which was materially lower
than the heady 6.1 percent growth rate reported in March 2022, but also higher than prepandemic
levels.
Sticky wages partly reflect the difficulty employers face in
finding workers willing to engage in in-person work, some of which
may be dangerous, unpleasant, and requiring interaction with the
public. Moreover, in-person work lacks the flexibility offered by
remote or hybrid jobs, a feature more workers are desiring
postpandemic. High demand for workers in some sectors, which are
being fueled by public policies supporting infrastructure building
and reshoring factories, is also driving wages higher. Finally,
retiring Baby Boomers are causing businesses to struggle with
worker retention, prompting firms to bid up wages.
Unemployment rate ticked higher
From the Household
Survey, the unemployment rate edged up to 4.1 percent in June,
compared to 4.0 percent in May and the 3.4 percent postpandemic low
achieved in 2023. The change in the unemployment rate in June
reflected a 162,000 rise in the number of unemployed persons.
Unemployment rates were higher for women, and across all
racial/ethnic groups, especially among Asian, and Black and
Hispanic persons 20 years and older. Jobless rate were lower for
men.
The unemployment rate is rising consistent with continued
softening in general economic activity (i.e., real GDP growth).
However, the unemployment rate may not rise much further and
continue to signal a healthy labor market. This is because
retirements are causing many companies to hoard workers, keeping
the number of layoffs, and thereby unemployment levels, at a
minimum. Baby Boomer retirements began in the early 2010's and
continue to mount as the cohort ages.
Labor Force Participation Rate capped by
retirements
The labor force participation rate ticked up to
62.6 percent in June from 62.5 percent in May. The change reflected
an increase in the number of people either employed (+116,000) or
actively looking for work (+162,000). The civilian labor force rose
by 277,000. Nonetheless, the overall labor force
participation rate remains well below the 63.3 percent rate in
February 2020 just before the start
of the 2020 pandemic.
The labor force participation rate for workers aged 16 to 64
edged back up to 75.0 percent in June and was notably above the
74.4 percent rate reported in February
2020. However, due to Baby Boomer retirements, the labor
force participation rate for workers 65 and older at 19.5 percent
in June remained well below the prepandemic level of 20.6 percent.
The outflow of older workers may continue to weigh on overall labor
force participation going forward absent changes in policy and
corporate outreach to pull more people from the sidelines back into
the labor market.
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SOURCE The Conference Board