Job Creation Rebounds in June

By Robert Hughes

The labor market rebounded in June. U.S. nonfarm payrolls added 224,000 jobs in June after an increase of just 72,000 new jobs in May. The modest May gain was revised down 3,000 from an initial estimate of 75,000 jobs. Combining the last two months with an 8,000 downward revision to April, the three-month average gain in payrolls came in at 171,000 in June. For the private sector, nonfarm payrolls added 191,000 in June following a gain of 83,000 in May. On a three-month average basis, private payrolls added 156,000. Over the past year, the average gain is 192,000 for total nonfarm jobs and 183,000 for the private sector (see chart).

Goods-producing industries added 37,000 in June, ahead of the monthly average gain of 35,000 over the past year. Durable-goods manufacturing and construction led with additions of 12,000 and 21,000 jobs, respectively, while nondurable-goods industries added 5,000. Within private service-producing industries, which typically account for the lion’s share of job creation, payrolls added 154,000 workers, led by gains of 51,000 each in health care and professional and business services and followed by gains in transportation of 24,000. Retail employment fell 6,000 for the month, continuing a string of declines totaling 48,000 over the past year.

The unemployment rate ticked up to 3.7 percent from 3.6 percent in May. The labor force participation rate moved up to 62.9 percent in June as 335,000 people joined the labor force. The participation rate briefly dipped to a cycle low of 62.3 percent in May 2015 but has been essentially trending flat between 62.7 percent and 63 percent since late 2013.

Average hourly earnings rose 0.2 percent in June, leaving the 12-month change at 3.1 percent, down from a peak of 3.4 percent in February but above 3 percent for the ninth consecutive month (see chart). Average hourly earnings growth has been slow compared to previous cycles, especially given the low unemployment rate.

Average weekly hours were unchanged at 34.4. Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.4 percent in June and 4.7 percent from a year ago. This index is a good proxy for take-home pay and has posted relatively steady year-over-year gains in the 4 to 6 percent range since 2010 (see chart). Continued gain in the aggregate-payrolls index is a positive sign for consumer income and spending, supporting continued economic expansion.

The strong rebound in job creation in June all but guarantees the current economic expansion ties the record for duration. Continued economic growth for July will set a new record of 121 months for the U.S. economy.

Despite the achievement, the outlook remains highly uncertain. Erratic trade policy, tariffs, escalating trade wars, deteriorating relations with major trading partners, and slowing global growth represent threats to continued economic expansion. Questions about the direction of monetary policy and policy makers’ decision-making process further complicate the outlook. Overall, the economy continues to grow and is likely to set the record for longest expansion, but poor leadership and policy remain significant risks.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.