Robust payrolls undermine recession claims
- The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession. That may be enough to solidify the case for another 75bp rate hike at the Fed’s meeting later this month, although signs that wage growth is cooling and the recent plunge in commodity prices both suggest the inflation outlook could improve more quickly than officials had feared.
- The June gain leaves the three-month average increase at a rock-solid 375,000 – leaving aside the pandemic, that is well above the outright stagnation typically seen in the run-up to past recessions. (See Chart 1.) There was little sign of weakness in the details either, with manufacturing adding 29,000 jobs, professional & business services employment up by 74,000, education & health up by 96,000 and even retail payrolls rebounding by 15,000.
- It’s true that the household measure of employment fell by 315,000, but it is a lot more volatile than the payrolls series and it had in any case been running stronger in previous months. Both measures are now within 0.5% of their pre-pandemic peaks. With the labour force also down, by 353,000, the unemployment rate was unchanged at 3.6%. While that is close to a 50-year low, and the broader U6 measure fell to a record low of 6.7%, from 7.1%, the stabilisation in the headline U3 rate echoes the survey evidence in suggesting that worker shortages are no longer quite as severe as they were a few months ago.
- That appears to be feeding through to a gradual slowdown in wage growth, with the 0.3% m/m rise in average hourly earnings pushing the annual growth rate down to 5.1%. While the latter is still a lot stronger than the Fed would like, wages are now rising by a more modest 4.2% in three-month annualised terms. Nevertheless, with the real economy seemingly holding up, officials are likely to press ahead with aggressive rate hikes over the coming months.
Chart 1: Change in Non-Farm Payrolls (000s, 3m Average) |
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Source: Refinitiv |
Table: Labour Market Data | ||||||||||||
Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Apr | May | Jun | |
Non-Farm Payrolls (000s) | 689 | 517 | 424 | 677 | 647 | 588 | 504 | 714 | 398 | 368 | 384 | 372 |
Unemployment Rate (%) | 5.4 | 5.2 | 4.7 | 4.6 | 4.2 | 3.9 | 4.0 | 3.8 | 3.6 | 3.6 | 3.6 | 3.6 |
Ave H’rly Earnings (%m/m) | 0.5 | 0.3 | 0.5 | 0.6 | 0.4 | 0.5 | 0.6 | 0.1 | 0.5 | 0.3 | 0.4 | 0.3 |
Ave Hourly Earnings (%y/y) | 4.3 | 4.3 | 4.8 | 5.4 | 5.3 | 4.9 | 5.4 | 5.2 | 5.6 | 5.5 | 5.3 | 5.1 |
Ave Weekly Hours Worked | 34.8 | 34.7 | 34.8 | 34.8 | 34.8 | 34.8 | 34.6 | 34.7 | 34.6 | 34.6 | 34.5 | 34.5 |
Source: Refinitiv | ||||||||||||
Andrew Hunter, Senior US Economist, +44 (0)20 7808 4071, andrew.hunter@capitaleconomics.com