WASHINGTON, July 7 (Reuters) – The U.S. added fewer jobs than anticipated in June but still-strong wage growth and a slight drop in the unemployment rate will likely keep the Federal Reserve on track to raise interest rates at the upcoming July meeting.
The 209,000 payroll jobs added in June continued a steady climb down in the pace of hiring from the highs seen in the months when the economy was still reopening from the pandemic.
But it remains above the 183,000 average jobs added per month in the decade before the health crisis, and the steady pace of average hourly earnings gains, stuck around 4.4% on an annual basis since April, was a sign the U.S. remains a seller’s market for workers.
“The economy is still adding more jobs than new entrants to the labor market,” wrote Vanguard Global Chief Economist Joseph Davis and Senior International Economist Andrew Patterson. Wage growth “remains well above levels the Fed would be comfortable with” in the fight to return inflation to the 2% target.
With job growth in prior months revised down by more than 100,000 jobs, the June jobs report is “a fairly soft print” with three-month average job gains now at 244,000 compared to more than 400,000 a year ago, said Omair Sharif of Inflation Insights. But progress towards a more balanced labor market is coming “slowly, slowly…These are still healthy figures” even as the pace softens.
Combined with still-sticky inflation and other data in recent weeks, it is likely to embolden the large majority of Fed officials who feel further rate hikes will be needed – and can be sustained by the economy without causing a major meltdown in employment.
At their June meeting a majority of Fed officials projected they would need to approve two more quarter point rate increases by the end of the year, and “I haven’t seen anything that says that’s wrong,” Chicago Fed president Austan Goolsbee said in a CNBC interview after the release of the latest jobs numbers.
“I feel like we are on the golden path. Let’s never have a recession again,” Goolsbee said. “This was a weird business cycle. We can have a weird recovery” with inflation falling without major damage to the economy.
Following release of the report traders in contracts tied to the benchmark federal funds rate upped expectations of a coming rate increase, and now see it as a virtual certainty the Fed will raise the rate to a range of 5.25% to 5.5% at the July 25-26 meeting.
While the Fed’s primary focus has been on inflation numbers that have continued to run well above the central bank’s 2% target, the progress of the labor market is central to the Fed’s hope of having it both ways – of fine-tuning policy in a manner that lowers inflation without imposing too heavy a cost on workers.
So far, the surprises have come in the other direction, with monthly job and wage growth proving far stronger than policymakers anticipated given the stiff pace of rate increases – a full 5 percentage points since the spring of 2022. The Bureau of Labor Statistics noted in the latest employment report that since March of 2022, when the Fed began hiking rates, the unemployment rate has remained in a range of 3.4% to 3.7%, relatively low by the standard of recent years and less than the roughly 4% unemployment rate Fed officials generally think would be associated with enough slack in the economy to lower inflation.
Despite ongoing concerns about a possible economic downturn or recession, companies have continued to add workers and up their pay.
“The labor market remains very tight,” Fed Chair Jerome Powell said at his press conference following the June 13-14 Federal Open Market Committee meeting, when policymakers decided to hold rates steady even as they indicated more rate hikes were likely coming later in the year.
But Powell added there were also “some signs” that the supply and demand for workers was coming into “better balance.”
One bit of evidence that Powell has watched closely – the number of open jobs in relationship to the number of unemployed – fell in May to its lowest level since November of 2021, as the number of unemployed job seekers increased.
But the same report also showed a jump in May in the number of workers who quit their jobs, typically taken as a sign of labor market strength and a potential precursor of faster wage increases.
Job openings, meanwhile, have been falling, though at 9.82 million in May remain well above the roughly 7 million open positions common in the years before the pandemic.
Reporting by Howard Schneider; Editing by Dan Burns, Nick Zieminski, Andrea Ricci and Chizu Nomiyama
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