The US job market continues to show signs of strength and resilience as the private sector added a staggering 497,000 jobs in June, surpassing economists’ expectations. This unexpected surge in hiring activity, as reported by private payroll processor ADP, indicates a positive trend in the labor market. While ADP’s figures may not always align perfectly with the official federal jobs report, it is often considered a reliable indicator of overall hiring activity. With the June jobs report soon to be released, it is highly likely that it will confirm the 30th consecutive month of job growth in the US.
A Strong Streak of Job Gains – Although the current employment growth may not match the record-breaking expansion seen between 2010 and 2019, where there were 100 consecutive months of job growth, the sustained strength of the current streak is noteworthy. Despite facing challenges such as rising inflation and historic interest rate spikes, the US labor market has added 1.57 million jobs so far this year. This places it as the 10th highest January-to-May total since 1939, according to Bureau of Labor Statistics data. The monthly average of 314,000 net job gains also surpasses pre-pandemic figures, including the 100-month stretch post-Great Recession. However, some economists caution that the labor market’s upward trajectory may begin to slow down. Sarah House, senior economist at Wells Fargo, predicts a gradual cooling off in the job market as the impacts of tighter monetary policy become more pronounced. While the job gains are expected to continue, they are likely to ease compared to the recent trend.
The June Jobs Report: Expectations and Forecasts – Economists anticipate that the June jobs report will show lower job gains compared to the average, and a decrease from the 339,000 jobs added in May. According to Refinitiv estimates, the consensus forecast is for a net gain of 225,000 jobs last month. However, the range of forecasts varies widely, from 110,000 to 288,000 jobs. The unemployment rate is also expected to dip slightly from 3.7% to 3.6%, according to Refinitiv estimates. However, this figure is subject to variations, with estimates ranging from 3.4% to 3.8%.
Data-heavy Thursday: Midday Insights – Thursday is a data-rich day that yields important insights for economists and market experts. The Job Openings and Labor Turnover Survey (JOLTS) and the Automatic Data Processing, Inc. (ADP) payrolls surveys of the private-sector are two examples of reports that are often issued earlier in the week to allow for study before the monthly jobs report is released. This knowledge is usually spread out over a longer period of time, but the Fourth of July holiday makes it all come out at once. Even before the weekly unemployment claims data was posted, the big surge in private sector job growth for June had already been highlighted in the ADP report. The majority of the growth, as reported by ADP, originated in the service sector, specifically the leisure and hospitality industries. However, ADP’s chief economist Nela Richardson warns that pay growth in these sectors is starting to slow, which might mean that hiring activity has peaked.
JOLTS, which is set to be released later in the day, is expected to show a slight decrease in US job openings for May compared to April.
Job Cuts and Softening Labor Market – Job growth has been strong, but huge IT companies are readjusting following the boom caused by the recession, thus layoffs have been in the news. However, overall jobless claims have only slightly increased and remain below pre-pandemic averages. In June, US employers announced 40,709 job cuts, the lowest monthly total since October 2022, according to data from outplacement firm Challenger, Gray & Christmas. However, when not counting the deep job losses of 2020, the total number of layoffs reported in the first half of 2023 is the highest for the January to June period since 2009. The technology industry continues to account for a significant portion of these cuts. Although the recent uptick in weekly jobless claims may indicate a softening in the labor market, it is essential to consider the volatility of this data. The four-week average has been trending upward in recent weeks, but it is subject to revision.
A Sudden Spike in the Unemployment Rate – In May, the nation’s jobless rate unexpectedly spiked from 3.4% to 3.7%, despite the strong job gains. This divergence between job gains and the unemployment rate puzzled economists. The monthly jobs report comprises two surveys: one surveying businesses about employment, hours, and earnings, and the other surveying households to determine the labor force status. The unemployment rate is derived from the latter survey, which is considered more volatile due to its smaller sample size. Some economists believe that the increase in the unemployment rate may not be a one-month anomaly but could continue to rise in June. Factors such as recent college graduates entering the job market and the slowing reemployment of workers laid off during the pandemic contribute to this prediction.
Labor Hoarding and the Possibility of a Soft Landing – Recent data indicates that many businesses are “labor hoarding” by maintaining their workforce despite softening demand. Reasons for this trend include a lack of available workers after the pandemic’s recovery and the retirement of the Baby Boomer generation.. The reluctance of businesses to let go of employees, even in challenging economic times, may contribute to a soft landing for the post-pandemic economy. A soft landing refers to a reduction in inflation without significant job losses or triggering a recession. While the intention might be to retain workers, financial constraints may eventually impact businesses’ decisions.
Conclusion – The private sector’s addition of half a million jobs in June provides a positive signal for the US job market. Despite challenges such as rising inflation and interest rates, the labor market continues to show resilience. The upcoming June jobs report is highly anticipated, with economists predicting lower job gains compared to previous months. The unemployment rate is also expected to dip slightly. However, job cuts and an unexpected spike in the unemployment rate in May suggest a potential softening in the labor market. As businesses navigate uncertain economic conditions, the concept of labor hoarding and the possibility of a soft landing come into play. The US job market remains a dynamic and closely watched indicator of the country’s economic health.