Jobs Report June 2022:

Job growth accelerated much faster than expected in June, indicating that the main pillar of the US economy remains strong despite pockets of weakness.

Nonfarm payrolls increased by 372,000 in the month, better than the Dow Jones estimate of 250,000 and continuing what had been a strong year for job growth, according to data released Friday from the Bureau of Labor Statistics.

The unemployment rate was 3.6%, unchanged from May and in line with estimates. An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell sharply, falling to 6.7% from 7.1%.

β€œIt seems that the 372,000 strong increase in non-farm payrolls in June makes claims that the economy is heading into a recession, let alone already in,” said Andrew Hunter, chief US economist at Capital Economics.

Stocks opened slightly lower after the news while government bonds were sharply higher. The 10-year Treasury yields 3.06% around 9:30 AM ET. That was still below the two-year return of 3.103%, a relationship called “reversal” that has historically been a reliable signal of a recession.

Wage gains are solid, the Fed is on track for a lift

June’s gains posted a slight slowdown from the downwardly revised 384,000 in May. The April count has been revised to 368,000.

Average hourly earnings rose 0.3% for the month and were up 5.1% from a year ago, the latest figure being slightly above the Dow Jones estimate of 5% and indicating that wage pressures remain strong as inflation accelerates.

Hunter added that the wage figure may mean that Fed officials are “likely to go ahead with significant rate hikes over the coming months.” Policy makers signaled a possible 0.75 percentage point rate hike at their July meeting.

“Raise rates significantly when the economy is strong and the labor market can sustain them,” Fed Governor Christopher Waller said Thursday.

By sector, education and health services created jobs, with 96,000 employees being hired, while professional and business services added 74,000 jobs. Other contributors include leisure and hospitality (67,000), healthcare (57,000), and transportation and storage (36,000).

Other sectors with strong gains included manufacturing (29,000), information (25,000) and social assistance (21,000). Government jobs fell by 9,000.

There was some discrepancy in the numbers: the headline number of job creation in the BLS survey was strong. But the household survey showed a decline of 315,000, leaving total jobs at 755,000 shy of the pre-pandemic level in February 2020.

Slack control

The gains come despite inflation, which is at its fastest pace since the early 1980s. Prices have skyrocketed at pumps and groceries, as well as in almost all aspects of daily life.

To combat rising inflation, the Federal Reserve raised interest rates with the aim of slowing the economy without causing a recession. However, recent indications show that growth has slowed considerably.

Inflation has affected low-income families in particular. Credit and debit card data from Bank of America shows spending among the sector fell 1% year-over-year as of June 30, an ominous sign for an economy that attracts more than two-thirds of its growth from consumers.

Gross domestic product contracted 1.6% in the first quarter and is on track to decline 1.9% in the second quarter, meeting the common definition of a recession. The slowdown in spending and the sharp decline in private investment are responsible for much of the decline.

The labor market is seen as a bulwark against recession, and the June numbers show that the employment pillar remains strong.

The June jobs report was very strong, even stronger than expected. Jos Foucher, chief economist at PNC Financial Services Group, wrote that job growth was well above consensus expectations, the unemployment rate held above its lowest level in decades, and wage growth was solid. The US economy is nowhere near a recession in the middle of 2022.”

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