Payrolls grew by 372,000 in June, the Labor Department announced Friday, easing fears over a potential recession while clearing the way for another round of interest rate hikes by the Federal Reserve later this month and beyond.
The unemployment rate held steady at 3.6%, as analysts expected, while the alternative U6 measure of unemployment, which includes discouraged and some part-time workers, fell sharply to 6.7% — an all-time low that suggests the labor market remains exceptionally tight.
Wages grew at a 5.1% annual clip in June, slightly above expectations but nevertheless a decline from the month earlier, when the annual rate hit 5.3%. The results suggest wage pressures are easing and provide little support for the view that inflation is being driven by workers’ demands for pay increases.
One disappointing number in the report was the labor force participation rate, which ticked lower to 62.2%. Still, that points to tighter labor market conditions as some workers move to the sidelines.
“The U.S. labor market is defying gravity,” said Becky Frankiewicz of the staffing firm Manpower Group. “Fears of a possible recession stoked by inflation and an aggressive Fed are eclipsed by the simple reality that employers can’t hire fast enough to meet demand.”
Private employment recovery: With private sector employment 140,000 higher in June 2022 than in February 2020, the economy has now recovered all the private sector jobs lost during the pandemic.
Overall employment, however, is still slightly lower, down 524,000, or 0.3%, relative to early 2020, due to a shortfall in public sector employment of roughly 664,000.
Julia Pollak, chief economist at ZipRecruiter, said in a note that the economy is creating lots of high-quality, well-paying jobs, especially in services. At the same time, job growth was broad-based in June, with gains recorded in retail, manufacturing and construction as well as areas like business management, scientific research and the information sector.
No recession in sight as the Fed tees up another hike: While some other economic data have raised concerns of a downturn, the strong jobs report “appears to make a mockery of claims the economy is heading into, let alone already in, a recession,” said Andrew Hunter of Capital Economics. RSM’s Joseph Brusuelas emphasized the point, writing that “an American economy in free fall does not tend to produce 372,000 jobs in any given month.”
Many analysts said the report underscores the need for the Fed to continue to move aggressively as it tightens monetary conditions. “The labor market is very hot,” Jeffrey Rosenberg of BlackRock told Bloomberg. “The Fed has to do more.”
“After this report, you can pretty much count on 75 basis points in July,” said Jim Caron of Morgan Stanley Investment Management. “The job market is strong and it’s not giving up any growth.”
Still, some analysts are worried that the Fed will push too hard and drive the economy into a recession as it looks to curb inflation. “There is a feeling of Wile E. Coyote running over the cliff, the economy is slowing, Fed hikes will almost certainly lead to a hard landing, but with employment remaining this strong, and next week’s [inflation report] likely to stay high, the risk that the Fed will hike higher and further than they should increases,” said Steve Chiavarone, senior portfolio manager at Federated Hermes.