US labour market cooling as unemployment rate rises to 4.1%
Published: 04:07 PM,Jul 06,2024 | EDITED : 07:07 PM,Jul 06,2024
People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York. — Reuters
WASHINGTON: US employment increased solidly in June, but government hiring accounted for more than a third of the payrolls gain and the unemployment rate hit a 2-1/2-year high of 4.1%, pointing to a slackening labour market that keeps the Federal Reserve on course to start cutting interest rates this year.
The Labour Department's closely watched employment report on Friday also showed the economy created 111,000 fewer jobs in April and May than previously estimated, suggesting the trend in payrolls growth was slowing.
Annual wages increased at the slowest pace in three years as the labour pool expanded, adding to the flashing warning signals in the jobs market. About 277,000 people entered the labour force last month, accounting for the increase in the jobless rate from 4.0% in May to the highest level since November 2021.
When added to the moderation in prices in May, the report could boost Fed policymakers' confidence in the inflation outlook after the disinflationary trend was disrupted in the first quarter. Financial markets expect the US central bank to start its easing cycle in September after it aggressively tightened monetary policy in 2022 and 2023.
'We now have definitive evidence of labour market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers 'more confidence' that consumer inflation will soon return to the 2.0% target on a sustainable basis,' said Scott Anderson, chief US economist at BMO Capital Markets.
Nonfarm payrolls increased by 206,000 jobs last month, lifted by government hiring, the Labour Department's Bureau of Labour Statistics said. Economists polled by Reuters had forecast payrolls would increase by 190,000 last month, with the unemployment rate unchanged at 4.0%.
Job growth has averaged about 222,000 per month in the first half of the year. A lagging measure of employment, the Quarterly Census of Employment and Wages (QCEW), has suggested a much slower pace of job growth through the fourth quarter of 2023 than that of the payrolls data.
The QCEW data is derived from reports by employers to the state unemployment insurance (UI) programs. While economists expect employment to be revised down when the BLS next month publishes its payrolls benchmark estimate for the 12 months through March of this year, they argued that the QCEW data does not include undocumented immigrants, a group that they believe contributed to strong job growth last year.
Though hiring in June continued to be driven by a cyclical sectors like healthcare and state and local governments, the share of industries reporting job growth jumped to 59.6% from 56.4% in May.
Government employment surged by 70,000 jobs, the most since December, boosted by local government, excluding education and state government. Private payrolls increased by 136,000, with the healthcare sector adding 49,000 positions, lifted by increased hiring in ambulatory healthcare services and at hospitals.
There was also an increase in social assistance employment.
Construction payrolls increased by 27,000 jobs. But the retail sector shed jobs, as did manufacturing. Professional and business services employment declined by 17,000 jobs, with temporary help employment dropping by about 49,000 jobs, the most since April 2020. That likely portends slower payrolls gains ahead.
'So far, we don't see apocalyptic signs within the labour market, but investors should be wary when the labour market is supported by government payrolls,' said Jeffrey Roach, chief economist at LPL Financial. 'The downward revisions to the previous two months is consistent with an economic slowdown.'
Stocks on Wall Street were trading mostly higher. The dollar edged lower against a basket of currencies. US Treasury prices rose. — Reuters
The Labour Department's closely watched employment report on Friday also showed the economy created 111,000 fewer jobs in April and May than previously estimated, suggesting the trend in payrolls growth was slowing.
Annual wages increased at the slowest pace in three years as the labour pool expanded, adding to the flashing warning signals in the jobs market. About 277,000 people entered the labour force last month, accounting for the increase in the jobless rate from 4.0% in May to the highest level since November 2021.
When added to the moderation in prices in May, the report could boost Fed policymakers' confidence in the inflation outlook after the disinflationary trend was disrupted in the first quarter. Financial markets expect the US central bank to start its easing cycle in September after it aggressively tightened monetary policy in 2022 and 2023.
'We now have definitive evidence of labour market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers 'more confidence' that consumer inflation will soon return to the 2.0% target on a sustainable basis,' said Scott Anderson, chief US economist at BMO Capital Markets.
Nonfarm payrolls increased by 206,000 jobs last month, lifted by government hiring, the Labour Department's Bureau of Labour Statistics said. Economists polled by Reuters had forecast payrolls would increase by 190,000 last month, with the unemployment rate unchanged at 4.0%.
Job growth has averaged about 222,000 per month in the first half of the year. A lagging measure of employment, the Quarterly Census of Employment and Wages (QCEW), has suggested a much slower pace of job growth through the fourth quarter of 2023 than that of the payrolls data.
The QCEW data is derived from reports by employers to the state unemployment insurance (UI) programs. While economists expect employment to be revised down when the BLS next month publishes its payrolls benchmark estimate for the 12 months through March of this year, they argued that the QCEW data does not include undocumented immigrants, a group that they believe contributed to strong job growth last year.
Though hiring in June continued to be driven by a cyclical sectors like healthcare and state and local governments, the share of industries reporting job growth jumped to 59.6% from 56.4% in May.
Government employment surged by 70,000 jobs, the most since December, boosted by local government, excluding education and state government. Private payrolls increased by 136,000, with the healthcare sector adding 49,000 positions, lifted by increased hiring in ambulatory healthcare services and at hospitals.
There was also an increase in social assistance employment.
Construction payrolls increased by 27,000 jobs. But the retail sector shed jobs, as did manufacturing. Professional and business services employment declined by 17,000 jobs, with temporary help employment dropping by about 49,000 jobs, the most since April 2020. That likely portends slower payrolls gains ahead.
'So far, we don't see apocalyptic signs within the labour market, but investors should be wary when the labour market is supported by government payrolls,' said Jeffrey Roach, chief economist at LPL Financial. 'The downward revisions to the previous two months is consistent with an economic slowdown.'
Stocks on Wall Street were trading mostly higher. The dollar edged lower against a basket of currencies. US Treasury prices rose. — Reuters