U.S. hiring cools but still signals economic resiliency
America’s employers pulled back on hiring in June but still delivered another month of solid job gains, evidence of a durable economy that has defied persistent forecasts of a recession.
The latest sign of economic strength — a gain of 209,000 jobs last month — makes it all but certain that the Federal Reserve will resume its interest rate hikes later this month after having ended a streak of 10 rate increases that were intended to curb high inflation.
The June hiring figure reported by the government Friday is the smallest in 2½ years but still pointed to a healthy labor market that has produced a historically high number of advertised openings. The unemployment rate fell from 3.7% to 3.6%, near a five-decade low.
Yet there were also signs in Friday’s report that the job market is cooling to a more sustainable pace of growth — a trend that, if sustained, could reassure the Fed that its rate hikes are cooling inflation pressures without derailing the economy.
“This is kind of a Goldilocks report,” said Julia Coronado, president of MacroPolicy Perspectives, an economic research firm. “It’s a resilient labor market — not too hot, not too cool.”
Most of last month’s job growth came in three broad categories that are largely insulated from economic trends: State and local governments, health care providers and private education. Together, they added 133,000 jobs. Because those sectors don’t depend on robust consumer spending as much as the rest of the economy does, their hiring gains don’t really reflect rising consumer demand — the main fuel for inflation.
Dean Baker, senior economist at the Center for Economic Policy Research, noted that excluding government hiring, privatesector job gains totaled 149,000
in June, a pace that does not necessarily point to an overheating economy that would alarm the Fed.
“It’s hard to say that’s too fast,” Baker said. “That’s pretty much sustainable.”
The government on Friday also downgraded its estimate of job growth for April and May combined by a substantial 110,000, another sign that hiring has eased from last year’s breakneck pace.
Other details in the report underscored the job market’s durability. The length of the average work week edged up, a sign that customer demand is strong enough to keep employees busy. When employers cut workers’ hours, that typically is a precursor to layoffs.
And wage growth accelerated: Hourly pay is up 4.4% from a year ago. Wages are now growing faster than year-over-year inflation, which amounted to 4% in May.
The wage data may raise concerns at the Fed, which is worried that faster pay gains will perpetuate inflation by leading companies to raise prices to offset their higher labor costs. The Fed wants to see hiring and wage increases slow before halting its rate hikes.
The economy has been beset by high interest rates, elevated inflation and nagging worries about a possible recession resulting from the Fed’s ever-higher interest rates. Even so, many industries keep adding jobs to keep up with consumer spending and restore their workforces to pre-pandemic levels.
And some companies are benefiting from the Biden administration’s spending on roads, water and sewer projects and other infrastructure work. Among them is Fehr Graham, an environmental engineering company based in Rockford, Illinois. CEO Mick Gronewold says he’s looking to fill at least 40 jobs at the 230-person company. The company designs water and wastewater projects, roads and industrial projects, mostly for cities and towns.
Fehr Graham is seeking engineers, surveyors, environmental scientists and accountants, among other positions. One trend stoking its hiring: Many of its employees retired during the pandemic and its aftermath, and the company needs more younger workers.
“We have an unbelievable amount of open opportunities,” Gronewold said. “We’re looking to hire people and can’t find them. We’re struggling to fill our positions.”
He estimates that his company has raised salaries 10%-15% just from a year ago to try to attract more job seekers.
Across the country, the solid pace of hiring and rising wages have enabled consumers to keep spending on services, from traveling to dining out to attending entertainment events. While economists have repeatedly forecast a recession for later this year or next year, a downturn is unlikely as long as companies keep steadily filling jobs.
The Fed has jacked up its key interest rate by a sizable 5 percentage points — the fastest pace of rate hikes in four decades. Those increases have made mortgages, auto loans and other forms of borrowing significantly more expensive.
Friday’s report also showed the job market is moving toward a better balance between supply of workers and companies’ demand for them, a key objective for many Fed officials. After the economy emerged from the pandemic, the number of available jobs surged above 10 million — the highest level on record.
The burgeoning demand for labor coincided with millions of Americans dropping out of the workforce to retire, avoid COVID, care for relatives or prepare for new careers. With companies struggling to fill openings, many offered sharply higher pay and better benefits to attract or keep employees.
Yet more people have come off the sidelines this year to take jobs, and legal immigration has rebounded after being restricted during the pandemic. Coronado estimated that immigrants are adding about 50,000 workers to the labor supply each month. Those trends are boosting supply and making it easier for companies to fill jobs. Businesses say they’re seeing more people apply for open positions. At the same time, the number of job openings dropped in May, a sign that demand for workers is gradually cooling.
Another sign that the job market is normalizing after the pandemic is that the number of workers who are quitting their jobs to take new positions has declined. Quits had soared after COVID struck. Millions of Americans sought more meaningful or better-paying jobs, stoking the pressure on companies to raise pay to keep their employees.
Yet quitting has fallen back to nearly pre-pandemic levels. All those trends — fewer job openings, fewer quits, more people looking for work — should cool wage increases and reduce inflation pressures in the coming months.