The June Job Report (2016)

7/8/16 12:00 PM

iStock_000009003675_Small.jpgThere was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America surged by 287K payrolls in June, significantly better than the +180K consensus estimate and the largest month-over-month increase since last October. This substantial rebound was likely helped by the end of the Verizon strike, which dragged heavily on telecom employment in the previous month. May’s already disappointing payrolls gain, though, was revised even lower from +38K to just +11K, but this was somewhat offset by the April figure being revised higher from +123K to +144K. As a result, the 3-month average payrolls gain ended June at +147K, one of the lower readings of the past few years but still above many Federal Reserve (Fed) officials’ estimates for the pace of job creation in America needed to keep up with overall population growth. Further, June’s solid payrolls gain was the 69th consecutive month of net job creation in this country, the longest such string in U.S. history. The household survey was a bit less encouraging because it suggested that only 67K jobs were added to the economy last month, and that the total number of unemployed people jumped by 347K to 7.8 million, although the latter largely balanced out the big decline seen in May.


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Speaking of joblessness, the official unemployment rate (U-3) lifted to 4.9 percent in June but the underemployment rate (U-6) slid to 9.6 percent. The U-3 increase was due largely to the 414K Americans rejoining the workforce in search of jobs last month. Moreover, the civilian labor force participation rate was little-changed in June at 62.7 percent, and it is worth reiterating that any recent reduction in participation continues to occur predominately among people with less than a high school diploma. Specifically, this group has seen its labor force shrink by 467K over the past year, compared to a gain of +2,199K among Americans with at least a Bachelor’s degree. Staying on the topic of joblessness, the rates of construction and manufacturing unemployment (NSA) ended June at 4.6 percent and 3.7 percent, respectively, the best readings since the summer of 2000. Another highlight included that child day care services employment jumped by +14.5K in June, the largest month-over-month gain in 14 years. This could be a side effect of more Millennials getting married and having kids, i.e. household formation. As for wage growth, average hourly earnings lifted by just 0.1 percent last month, below expectations and a slowdown from May. On a year-over-year basis, wage growth firmed to 2.60 percent in June, and tightening labor markets should eventually put additional upward pressure on worker compensation and in turn consumer inflation. Altogether, this was a generally positive job report which suggests that the aberrations in May were seasonal quirks related to end-of-school-year timing, the Verizon strike, and other temporary factors. Having said that, one monthly job report (good or bad) does not make a pattern. The Fed recognizes this and will likely wait for at least another few months' worth of supporting economic data before making any changes to monetary policy. The market-implied probabilities of a rate hike, though, lifted immediately after the release of the June job report but are still markedly lower compared to where they were just a few months ago. 




Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoL, FRBSL

Post author: Charles Couch