Employers added 372,000 jobs in June as the sizzling labor market shrugged off a slowing economy, high inflation and rising interest rates.
The unemployment rate held at 3.6% for the fourth straight month, just above a 50-year low, the Labor Department said Friday.
Economists surveyed by Bloomberg had estimated that about 270,000 jobs were added last month.
The report highlights a remarkably resilient job market, despite the economy’s trouble spots and a growing recession risk, as well as wage growth that’s still historically strong but is slowing as more Americans sidelined by COVID re-enter the work force.
Some companies view a recent flurry of layoffs and downsized hiring plans as an opportunity to scoop up workers who have been in short supply during the pandemic.
San Diego-based IDMerit, which provides online identity verification services, recently tripled to 13 the number of tech, client service and product management employees it plans to hire.
“What if the economy doesn’t really slow down?” asks CEO Tony Raval. “I want to take advantage of this situation…and hire good resources right now.”
The Labor Department on Friday did revise down payroll gains for April and May by a total of 74,000, revealing a modestly softer job market in the spring than believed.
As a result, employment growth moderated to a still-robust average of 383,000 jobs a month in the March-May period from about 600,000 the prior three months as the nation drew closer to recovering all 22 million jobs lost in the pandemic. It has now recouped 97.6% of those jobs, and could reclaim the rest in the next couple of months.
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How is the economy faring now?
“You can put away your recession alarm bells,” says Nick Bunker, economic research director for job site Indeed. “The U.S. labor market is still very strong.”
The private sector now has recovered all 21 million jobs wiped out in the crisis, Labor Secretary Marty Walsh noted in an interview. It now tops that benchmark by 140,000.
“We’re starting to see some consistency in the job market,” Walsh said.
In June, professional and business services led the job gains with 74,000. Leisure and hospitality, which includes restaurants and bars, the sector hit hardest by COVID-19, added 67,000; health care, 57,000; transportation and warehousing, 36,000; and manufacturing, 29,000.
Employers are still grappling with widespread worker shortages as the nation continues to heal from the pandemic.
Many Americans have returned to a favorable labor market this year, but others are still caring for children, fearful of COVID, switching careers or living off federal stimulus checks or other aid. Last month, the number of people working or looking for jobs fell by 353,000, possibly in part because of lingering COVID waves. That pushed down the labor force participation rate from 62.3% to 62.2%, still well below the pre-COVID level of 63.4%.
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But in an encouraging sign, child care services, which have struggled to recover jobs lost in the pandemic, added 10,600 positions last month, Walsh noted. The industry is up about 35,000 jobs this year, though it’s still about 100,000 short of pre-crisis level. The gains, Walsh says, are allowing more Americans to return to work.
For now, the economy remains on solid footing as it continues to benefit from a resumption of travel and other activities and massive household savings built up during the health crisis.
What is inflation at right now?
But inflation hit a 40-year high of 8.6% in May amid lingering supply-chain troubles and Russia’s war in Ukraine. Sharply climbing prices are squeezing companies’ profit margins, leading many to scale back hiring plans, says economist Lydia Boussour of Oxford Economics.
Consumers are also cutting back as costs swell. Manufacturing and service sector activity is expanding more slowly. And initial jobless claims, a gauge of layoffs, have trended higher in recent months, though they’re still historically low.
The Federal Reserve is compounding the pain, at least in the near term, by aggressively raising interest rates to curtail the inflation spike.
By the end of the year, Moody’s Analytics estimates, average monthly job gains will slow to just over 100,000. Although top economists believe the nation can dodge a recession, they have substantially raised the odds of one in the next 12 months, a scenario that likely would mean net monthly job losses for the U.S.
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Is a recession coming in 2022?
While the economy likely contracted for a second straight quarter over the past three months – historically an informal benchmark for recession – top analysts say it will likely take falling employment to nudge the nation into a downturn.
In June, U.S. employers announced about 32,000 job cuts, up from about 20,000 in both May and June 2021, according to outplacement firm Challenger Gray & Christmas. And the gloomier outlook is prompting some businesses to rein in hiring.
CompanyFolders.com – which makes folders, binders and other business marketing materials – recently scrapped plans to hire a marketing manager, business analyst and project manager, says CEO Vladimir Gendelman.
Sales for the Pontiac,Michigan-based company are up 20% over last year, he says. But he adds, “I don’t want to hire people and then have to let them go.”
Felix Media Solutions, which provides audio-visual equipment to businesses, had planned to bring on about nine technicians to handle a 25% increase in revenue but now will rely on contractors instead, says Lionel Felix, CEO of the Austin, Texas-based company.
“We are very busy but with all of the news of the recession, we are waiting for the bad news,” Felix says. “We’re all a bit gun shy and don’t want to have to lay people off.”
The job market was also expected to face some temporary obstacles in June. Restaurants, hotels and amusement parks hired hundreds of thousands of workers during the same period the past two years as the businesses recovered from the fallout from COVID. That likely reduced this year’s gains after seasonal adjustments, Goldman Sachs says.
And many restaurant and other frontline workers recently have been idled by COVID waves, a development that may have dampened job gains, says Diane Swonk, chief economist of Grant Thornton.
Will Fed raise interest rates again in July?
The strong report could help convince the Federal Reserve to raise its key interest rate by a hefty three-quarters of a percentage point for a second straight month in late July to curtail inflation instead of the half point hike it had planned, says economist Andrew Hunter of Capital Economics.
Average hourly pay rose by 10 cents, further nudging down the annual increase to 5.1% from 5.2% and providing another sign of cooling inflation along with falling commodity prices. But that’s still too high for the Fed, which is likely to press ahead with sharp rate increases, Hunter says.
Economists worry the big hikes will further push up mortgage rates and other borrowing costs and continue to hammer the stock market, raising the risk of recession.