Commentary Directory

Solid June Jobs Gain Bolsters Arguments for July Rate Hike

Jacob Hess
July 07, 2023

The US added 209,000 jobs in June which means that monthly employment growth has grown by at least 200,000 in each month of the year so far despite broad recession fears going into 2023. On top of the job gains, the unemployment rate fell slightly, down -0.1 ppts to 3.6%. The unemployment rate has ranged from 3.4% to 3.7% since March 2022 pointing to the entrenchment of labor market tightness that has been evident since the end of the pandemic. The total number of unemployed individuals fell back below 6 million to 5.96 million as that population fell by -140,000. Despite the show of hiring demand, the labor supply was mostly unchanged with the labor force participation rate stuck at 62.6% where it’s been for the last four months.

From BLS

The government was the largest hirer in June, adding 60,000 jobs. Employment continued to trend up in state government (+27,000) and local government (+32,000). So far in 2023, the government has added an average of 63,000 jobs per month thus far in 2023, more than twice the average of 23,000 per month in 2022. Public employment growth has been very supportive of job growth this year and may be distracting from a weaker trend in private employment. In that segment, the largest hiring industry was healthcare with an increase of 41,000. Gains in business services (+21,000) and leisure & hospitality (+21,000) were more muted during the month as hiring has started to slow in the services sector. Regardless, there is still hiring happening since some labor shortages still persist.

The tightness of the labor market has kept the temperature up when it comes to wage pressures. Average hourly wages increased 0.36% MoM and 4.35% YoY in June which was essentially the same as 4.37% YoY in May. The reason for some stickiness in wage growth was because of a bump up in goods wages, reversing a trend of cooling in that sector. Goods sector wage growth was 0.50% MoM and 4.94% YoY, up from 4.64% YoY. Meanwhile, services sector wage growth cooled slightly, to 4.20% YoY from 4.31% YoY.

While not as strong as the nearly 500,000 job additions reported by the ADP employment report, the BLS report does provide some evidence of sturdiness in labor demand in the face of tight financial conditions. The main argument for a weakening labor market is the fact that the government was the largest hirer in June at 60,000 which means that private-sector hiring was only around 140,000. However, that is unlikely to be a selling point for the Fed. Wage growth did not make any meaningful progress this month, and in fact, the reversal of goods wage growth could be seen as a new inflationary force to consider. With that being said, this report reinforces the hawkishness seen in the FOMC minutes and probably keeps the Fed on track to hike by 25 bps in July.