The monthly jobs report for June, released Friday, is further evidence that this indicator has become more than just a snapshot of the health of a key part of the U.S. economy and the outlook for monetary policy.
A long run of impressive monthly job creation is among the main reasons why the projections of economists, in both the private and public sectors, have continued to be bullish for U.S. growth, despite growing uncertainty about the rest of the global economy and the threat of a trade war. This also explains in part why the Federal Reserve is now signaling two rate hikes during the second half of the year. In addition, this report’s less-favorable indicators — relatively sluggish wage growth and a higher unemployment rate due to increased labor-force participation — keep open the possibility of further enhancements to both the demand and supply drivers that support a continued expansion that is stronger and more inclusive.
Although the report for June was far from uniformly strong, it will reinforce the perception that the U.S. will continue to outpace other countries and should be able to navigate trade policy uncertainties as long as they don’t lead to a full-blown global trade war. In addition, the data should encourage the Federal Reserve to hike interest rates at least once more this year (with the balance of risks tilting toward two hikes). Here, in summary, are the three main takeaways:
- Buoyant job creation: The U.S. economy continues to be one of the most dynamic job creators in the world, adding 213,000 jobs in June (the median estimate of analysts surveyed by Bloomberg called for a gain of 195,000). In addition, prior months’ estimates were revised up. These are notable indicators given that this is the ninth year of an economic expansion.
- “Healthy” rise in the unemployment rate: Even though it was expected to decline, the unemployment rate rose to 4 percent from 3.8 percent. Nonetheless, at 6.6 million, the number of unemployed Americans could again be smaller than current job openings. The rise in the unemployment rate was also “healthy” because it reflected an uptick in the labor participation rate (to 62.9 percent from 62.7 percent), raising hopes that the labor force can overcome some of its structural headwinds. This was consistent with sectoral data pointing to a more dynamic manufacturing sector, among others.
- Wage growth continues to be sluggish: Not all the June data were encouraging. Instead of accelerating, as many had hoped, annual wage growth fell slightly, to 2.7 percent from 2.8 percent. Moreover, some of the other internals, including a rising unemployment rate for African-Americans, highlighted the challenges to more inclusive growth.
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