In June, wages were 4.4 percent higher than a year earlier and unemployment edged down to 3.6 percent from 3.7 percent in May.
Workers’ pay grew at the same annual rate in April and May but remains below the core inflation rate, which ran at 5.3 percent in May, indicating that workers are still losing purchasing power despite strong wage gains.
The U.S. economy added 209,000 new jobs last month, fewer than May’s revised 306,000 total but still “a solid monthly gain,” The Wall Street Journal noted, although the number was below economists’ consensus estimate of 225,000.
However, the number was higher than the pre-COVID average number of monthly hires.
The labor department revised the number of jobs added in April and May downward by 110,000.
During this year’s first half, an average of 278,000 workers found jobs each month.
In June, workers raised their spending on discretionary purchases, including new cars, restaurant meals, travel, and tickets to ball games.
The job market’s unrelenting strength raises the odds that the U.S. Federal Reserve will continue to raise interest rates over a longer period than if the labor market was responding to the central bank’s previous rate hikes.
Wage growth would have to slow to an annual pace of about 3.5 percent if the Fed is to reach its inflation target of 2 percent, many economists have calculated.
“The Fed still has a significant way to go in the fight against inflation,” Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, told the WSJ. “We’re in this long grind phase and it’s going to take persistence in keeping interest rates high.”
Fed officials have all but guaranteed another quarter-point rate gain at their meeting later this month. Minutes of the Fed’s June meeting show the central bank’s rate-setting committee expects two more rate bumps this year.
Stock markets fell on expectations of another rate increase. The yield on the two-year treasury note rose for a fifth consecutive week, ending Friday at 4.931 percent.
“It seems likely the economy’s next move is a step down,” Bill Adams, Comerica Bank’s chief economist, said to the WSJ, citing the impact of higher interest rates, renewed student loan payments sucking more money from consumers’ budgets, and shoppers continuing to spend down their savings.
June’s hiring was notably strong in construction, health care, and social services. However, restaurants and bars laid off workers for the first time since late 2020. Retailers, warehouses, and transport companies dumped workers as well, together indicating that consumer spending may be peaking.
Also in June, the number of people wanting full-time jobs but working part-time rose by almost 500,000. The number grew because companies cut workers’ hours due to slowing business activity, the U.S. labor department reported.
TREND FORECAST: Rising layoffs in retail, warehousing, and transport show that businesses expect the consumer economy to weaken. Higher interest rates will weaken it faster.
Also, consumers are reaching the end of their decade-long shopping spree. They not only are paying more to buy less, but also have maxed out their credit cards and have virtually emptied their savings, as we reported in “Consumers Sink Deeper into Debt in June” (9 Aug 2022) and “Americans Drain Their Savings to Keep Spending” (12 0ct 2022), among other articles.
Because shoppers drive nearly 70 percent of the U.S. economy, a softening consumer sector raises the likelihood of a recession.