July 07, 2023
The establishment survey showed a gain of 209,000 jobs in June, roughly in line with expectations. The unemployment rate drifted down to 3.6 percent, 0.2 percentage points above the half-century low reached in April. Government employment accounted for 60,000 of the June gains, meaning the private sector added just 149,000. In addition, the prior two months’ jobs numbers were revised down by 110,000. As a result, total job growth averaged 244,000 a month over the last three months, with the private sector adding an average of 196,000.
Hours Jump in June, but Weak in Second Quarter
After falling in May, the index of aggregate hours rose 0.4 percent in June. That still left us up by just 0.2 percent since January. This implies slower labor demand growth than the payroll data indicates. It would be consistent with a labor hoarding story, where employers keep more workers on their payroll than necessary because it is difficult to find new workers.
For the quarter as a whole, aggregate hours have risen at just a 0.5 percent annual rate. With self-employment falling in the quarter, total hours growth is likely negative. This should mean a strong productivity growth number for the quarter, offsetting the decline reported for the first quarter.
Wages Jump in June
The average hourly wage rose 12 cents in June, bringing the annual rate of wage growth over the last three months to 4.7 percent. This is clearly faster than a pace consistent with the Fed’s 2.0 percent inflation target.
The pattern of faster wage growth for lower-paid workers is less clear in recent months. The annual rate of wage growth for production and non-supervisory workers was 4.4 percent over the last three months. For production and non-supervisory workers in retail, it was just 3.0 percent, although it was 6.4 percent in leisure and hospitality.
Labor Force Participation Rate for Prime-Age Women Hits Another Record High
The overall labor force participation rate (LFPR) was unchanged at 62.6 percent, but for prime-age workers (ages 25 to 54), it rose by 0.1 percentage points to 83.5 percent, 0.4 percentage points above its pre-pandemic peak. The LFPR for prime-age women rose by 0.2 percentage points to 77.8 percent, the highest level on record. The rate for men edged up 0.1 percentage points to 89.2 percent. This is still 0.4 percentage points below the pre-pandemic peak.
Black Unemployment Rate Rises to 6.0 percent
After rising 0.9 percentage points in May, the Black unemployment rate rose another 0.4 percentage points in June to 6.0 percent. This is troubling for two reasons. First, the 4.7 percent unemployment rate reported for Black workers in April was the lowest on record. This indicated that Black workers were seeing real gains from a strong labor market. That seems to be less the case today.
The other reason is that Black workers historically have benefited disproportionately from a strong labor market and have been hurt most by a weak one. This rise in the Black unemployment rate can be seen as evidence of a weakening labor market.
Percentage of Unemployment Due to Quits Edges Higher, but Still Well Below Peaks
The share of unemployment due to voluntary quits edged up to 13.2 percent from 12.6 percent in May. This is a measure of workers’ confidence in the labor market since it indicates their willingness to quit a job before they have a new job lined up. The June number is consistent with a strong labor market but well below the peak of 15.8 percent hit last September and also below peaks of more than 15.0 percent reached both in 2019 and 2000.
Involuntary Part-Time Employment Jumps by 452,000
There was an increase of 452,000 in the number of people who reported working part-time for economic reasons. This followed two months of large declines, but the June figure is still 89,000 above the level reported for March. This likely indicates a somewhat weaker labor market.
Government Sector Adds 60,000 Jobs in June
State and local government employment has lagged behind private-sector employment in the recovery from the pandemic. This was likely in part because many government jobs, like teachers and librarians, have been made more difficult by recent political developments, but also because bureaucratic processes blocked efforts by governments to match pay being offered in the private sector.
This seems less the case now, with state governments adding 27,000 workers in June and local governments adding 32,000. State government employment is now 1.4 percent below its pre-pandemic peak, and local government employment is 1.0 percent.
Construction and Manufacturing Still Adding Jobs
Historically, construction and manufacturing have been the most cyclically sensitive sectors of the economy. However, these sectors are still adding jobs in spite of the Fed’s rate hikes. Construction added 23,000 jobs, with even residential construction adding 10,800 jobs. Manufacturing added 7,000 jobs, driven by an increase of 15,000 jobs in the durable sector. Non-durable manufacturing lost 8,000 jobs.
Health care Adds 41,100 Jobs in June
Health care has added more than 40,000 jobs in each of the last three months. It was by far the leading sector for job growth in June. By contrast, restaurants actually shed 800 jobs in the month, the first decline since December 2020. Since average hours of production and non-supervisory workers in the larger leisure and hospitality sector were unchanged, it is unclear whether this is a demand or supply story.
Nursing homes and child care centers, both of which have had difficulty hiring workers, both saw increases in jobs, rising by 6,200 and 3,400, respectively. Employment in nursing homes is now 11.1 percent below pre-pandemic levels, while employment in child care centers is down 4.6 percent.
Another Solid Report, with Some Concerns
The June jobs report, on the whole, has to be seen as very positive. The small drop in the unemployment rate meant that the May rise was not the beginning of a trend. Job growth has clearly moderated, with private sector growth now at a pace that can be viewed as sustainable.
The rate of wage growth means workers are now seeing real wage gains; although, on the downside, the Fed is likely to see it as a basis for further rate hikes. The jump in the Black unemployment rate in the last two months reverses one of the brightest parts of the recovery to date, although at least some of the reported drop and the subsequent increase was likely due to measurement error.