June Jobs

 

The May jobs report came in on the slightly warmer side for those mindful of inflationary pressures. Earnings continued to grow at substantially elevated rates, and broad private-sector employment gains showed no sign of an economy cooling off. Employers in May added 390,000 jobs, with private-sector payrolls gaining 330,000 jobs, while the unemployment rate remained at 3.6 percent. The labor force participation rate rose to 62.3 percent. Here is a brief summary of the major economic indicators since the last jobs numbers: The Producer Price Index for final demand increased 0.8 percent in May; The Consumer Price Index increased 1.0 percent in May; Real average hourly earnings decreased seven cents from April to May; Orders for durable goods (including defense and aircraft) increased 0.7 percent in May; New home sales increased 10.7 percent in May; The Price Index of U.S. imports increased 0.6 percent in May; ISM Services Index decreased 0.6 percentage points to 55.3 percent in June; ISM Manufacturing Index decreased 3.1 percentage points to 53.0 percent in June; Consumer Confidence Index decreased 4.5 points from 103.2 to 98.7 in June; ADP reported private sector employment increased by 128,000 jobs in May* (ADP is updating methodology)  Gordon's Guesstimate: June Jobs In September of 2019, and then in January and February of 2020, the unemployment rate sunk to 3.5 percent. Prior to those instances, one would have to travel back in time 50 years to see similarly low levels of joblessness. Today, the unemployment rate is a scant tenth of a percentage point from that low level. The ratio of unemployed workers to job openings is similarly close to rock-bottom levels. In absolute terms, the labor market remains historically tight. Directionally, however, there are some signs that the deliberate policy of the Federal Reserve to temper the economy is bearing out. The pace of hiring has plainly downshifted over the last three months, with average monthly payroll growth at about 70 percent the pace of the preceding 12 months. Weekly unemployment insurance initial claims have steadily climbed out of all-time lows since March. Like other major indicators, the absolute level of these claims is historically low. For context, over the 10-year expansion from 1991 to 2001, initial claims never approached this level and averaged over 110,000 more weekly initial claims. The pace of this metric has been steady over the month but was elevated over the prior two months. If the U.S. labor market were a car, it would be speeding and still accelerating. But it’s rate of acceleration is plainly slowing. In Q1, the U.S. economy shrank, and by the third estimate of GDP, it was clear that this contraction wasn’t just a quirk of inventories or trade that would soon unwind. Consumer spending was weaker than was initially thought. Rapid price growth, which takes direct aim at family pocketbooks, is clearly tamping down consumer activity – consumption fell in real terms in May, though consumer demand for services remained positive. The upshot of these observations is that the tonnage of recession talk is currently overstated. It is worth pointing out that loosening labor markets and cooling consumer demand are the desired outcomes of the Federal Reserve’s policies. It should be somewhat encouraging to these borne out in the data – but they certainly don’t (obligatory “yet” here) point to recession and job losses. Rather, for the June jobs report, this guesstimator is expecting an increase in payrolls of 360,000, the unemployment rate to stay put at 3.6 percent, and average hourly earnings to increase by 9 cents.