A solid month of hiring in June eases concerns that Greece-related global financial turmoil is spilling into the U.S. economy and raises the prospect of long-awaited hikes in U.S. lending rates.
Employers added 223,000 jobs in June, the Labor Department said Friday, and the unemployment rate fell two ticks to 5.3 percent during the month, the lowest it’s been since April 2008.
Deeper in the monthly report, however, there was disappointment.
“Job growth remains solid and unemployment continues to decline, but the pull back in labor force participation and the soft wage number put a darker hue on the data,” said Mark Zandi, chief economist for forecaster Moody’s Analytics.
Part of the drop in the unemployment rate came from another dip in the labor force participation rate to levels last seen in 1997. And wage growth was unchanged last month, with average hourly earnings for all employees nationwide on private payrolls at $24.95.
Year-over-year, average hourly earnings have risen just 2 percent. The subdued wage growth translates into stagnant income and dampens consumption, which powers about two-thirds of U.S. economic activity.
Revisions to data from earlier months also took some of the shine off the headline numbers. The Bureau of Labor Statistics now says that May’s sizzling 280,000 jobs was actually a more modest 254,000. April’s 221,000 number was revised down to 187,000.
Combined, there were 60,000 fewer jobs created than first thought. It suggests weaker tailwinds in the spring when the U.S economy was clawing back from a first quarter that saw the economy actually shrink by 0.2 percentage points.
The revisions mean that over the past three months, job gains have averaged 221,000 per month, an improvement over the first three months of 2015 but still below potential.
“The current pace of job growth is twice that needed to absorb the growth in the working age population. The economy is fast approaching full employment, and should be there by this time next year,” said Zandi.
If he is wrong, he cautioned, and wage growth remains subdued over the summer, the Federal Reserve could delay its first rate hike in almost nine years.
The Fed had sought to raise lending rates in June, then fixed on September. But ongoing turmoil in Greece and weak U.S. growth early in the year have made the so-called liftoff date for interest rates uncertain.
“The June payroll report was not weak enough . . . to keep the Fed on hold this year, but it will keep them cautious about the outlook,” Scott Anderson, chief economist of Bank of the West in San Francisco, told investors. “I am still looking for one rate hike from the Fed this year, though whether that rate hike comes in September or December is a very close call right now.”
The rate hike matters to ordinary Americans. When the Fed begins raising its federal funds rate, which has been anchored near zero since December 2008, borrowing costs for businesses and consumers will rise in tandem. It’s a sign that the Fed views economic recovery as strong enough to absorb higher borrowing costs.
Today’s jobs report supports our outlook that the data dependent Fed may begin to raise rates as early as September.
John E. Silvia, chief economist Wells Fargo Securities
Working against a September rate hike, said Anderson, is flat job growth in the construction sector and continued weak creation of manufacturing jobs. Both suggest the goods-producing side of the economy continues to struggle throughout the first half of 2015.
Add to the mix a strengthening U.S. dollar that’s hurting U.S. exports, fears that Greece’s economic collapse could contaminate global financial markets and a pullback in the energy sector amid an oil glut. It all suggests uncertainty aplenty in the outlook.
Those factors aside, wage growth remains key. Wages rise in a tighter market, where employers compete for qualified workers. The weakness in wages, irrespective of strong hiring, is thought to weigh heavily on the Fed’s thinking.
“This weakness, along with a historically low labor force participation rate, will bolster the arguments of those on the (rate-setting) Federal Open Market Committee who think that there is still a lot of slack in the labor market,” said Nariman Behravesh, chief economist for forecaster IHS Global Insight.
Within Friday’s numbers, the better-paying, white-collar professional and business services sector led the pack, adding 64,000 jobs last month. Healthcare was not far behind, adding more than 40,000 posts. Retailers added almost 33,000 jobs
In another positive sign, an alternative measure of unemployment, sometimes called the real jobless rate, fell a sharp three-tenths of a percentage point last month. The so-called U-6 measure, which includes discouraged workers and those on the margins of the labor force, fell to 10.5 percent.
June by the numbers
Professional and business services, up 64,000
Manufacturing, up 4,000
Leisure and hospitality, up 22,000
Health care, up 40,100
Temporary help services, up 19,800
Transportation and warehousing, up 17,100
Retail, up 32,900
Financial services, up 20,000
Government jobs, unchanged