The US job market showed signs of a prolonged slowdown last month but extended a two-and-a-half year streak of job growth, the Labor Department said on Friday.
Employers in the US added 209,000 seasonally adjusted jobs and the jobless rate fell to 3.6 percent from 3.7 percent in May as unemployment stayed near a low seen in more than half a century.
June was the 30th consecutive month of job growth, but the increase was below May’s revised 306k and the lowest since the start of the series.
Wages, measured by the average hourly wage of workers, increased by 0.4 percent compared to the previous month and by 4.4 percent compared to June 2022. Those increases were in line with the May trend but beat expectations, a potential concern for Federal Reserve officials who have been trying to contain wages and prices by raising interest rates.
Still, the response to the report from economists, investors and labor market analysts was generally positive. The resilience of the job market has fueled hopes that inflation can be brought under control while the economy continues to grow.
“If you were to say 12 to 18 months ago what needs to happen to get a soft landing, it would look very similar to what it is now,” said Jason Draho, head of asset allocation for the Americas at UBS. “Not many people thought it was possible — including some very prominent economists — it might still not happen, but we’re on a path that’s compatible with that.”
President Biden welcomed the report unreservedly, noting that unemployment has remained below 4 percent for months since the 1960s. “This is bidenomics in action,” he said in a statement released by the White House.
Concerns about an impending recession have dominated the economic debate for a year or more. Most economists assumed that the United States was now in the grip of a recession, partly because of the rapid escalation in interest rates. This increase in the cost of borrowing has shook the banking sector and paralyzed the real estate market for a time.
But the dampening effect of higher interest rates was offset by the robust income and spending of many households and the resilience of companies – both supported by the pandemic emergency aid from Congress and the Fed. Though families, business leaders, and investors alike grappled with the frustrating reality of inflation and economic uncertainty, growth continued almost defiantly.
Ellen Zentner, chief economist at Morgan Stanley, whose company didn’t forecast a recession last year, said a recent uptick in consumer sentiment could be related to the “recognition that the economy has been much more resilient to a recession” as monetary policy tightens more than previously expected .”
According to the Federal Reserve Bank of Cleveland, inflation data released next week is expected to show annualized inflation falling to 3.2 percent from a peak of 9.1 percent last year. Some economists believe it may be possible to contain inflation entirely without a large spike in unemployment. But views remain divided.
“The motto ‘choose the data point that supports your narrative’ remains,” said Oren Klachkin, senior US economist at Oxford Economics. “I still think a recession is more likely than not.”
Some analysts were concerned that the unemployment rate for black workers rose to 6 percent in June after hitting a low of 4.7 percent two months earlier.
After a huge surge in 2020 and 2021, industries related to the manufacture, transportation and sale of goods appear to be experiencing a decline. Employment in retail, transportation and warehousing declined in June. But those public sector jobs that have lagged behind also posted strong gains, as did the thriving service sector.
Prime-age labor force participation, the proportion of people aged 25 to 54 who are working or looking for a job, has risen to its highest level since 2002. Economic growth estimates for the first half of the year have been revised upwards.
Big banks like JPMorgan Chase and Goldman Sachs assume that a recession this year is now unlikely. The suppressed housing market is showing signs of life. Current data shows that manufacturing construction is booming. Consumer spending has declined from its 2021 highs, but many retail analysts say it may simply be readjusting to pre-pandemic trends.
The key question, said Claudia Sahm, a former Fed economist, is whether a slowdown turns out to be “a sign that they’re just getting back into balance and then we just move on.”
A growing cohort of investors believe sustained growth could lay the groundwork for its own destruction as the Fed responds by keeping borrowing costs higher for much longer than companies anticipated. This could result in some debt burdens becoming unsustainable for companies, particularly those that rely on loans or lines of credit from banks or may need to raise new funds from investors.
Corporate defaults more than doubled last month from the same period last year, according to Moody’s Investors Service. Some economists see this trend – which is usually a concern – as a sign of normalization compared to a time when bankruptcies following the onslaught of emergency government aid were comparatively unusually rare.
“An increase in defaults as a result of a rise in interest rates just isn’t surprising,” said Justin Wolfers, a professor of economics and public policy at the University of Michigan.
Walt Rowen, third-generation owner of the Susquehanna Glass Company, a 113-year-old glassware company in Columbia, Pennsylvania, is a microcosm of the volatility the US economy has experienced since the pandemic began.
In 2019, his business was booming with sales of about $5 million, Mr. Rowen said. When the pandemic hit, Susquehanna Glass wasn’t considered an essential business. “We had to fire everyone,” Hen said. “We could never allow people to work remotely.”
He has survived the past three years only on two forgone loans from the Paycheck Protection Program and a third, longer-term loan from the Small Business Administration. Now that the pandemic is abating and supply chains are recovering, business has stabilized – but is facing new challenges.
“In 2019, I was paying factory workers about $10 an hour, and now I can’t get anyone to interview unless I offer at least $13 — so my wages went up 30 percent, and that’s not that.” Case “I’ll come down again,” said Mr. Rowen. “But glass prices are starting to fall again.”
Securing the company’s stable funding is a looming problem, he said, “because the rate hikes introduced by the Fed have increased borrowing for basic credit lines for companies like mine by 5.6 percent from the previous level.”
His interest payments to his bank have doubled, leaving him more dependent than ever on strong Christmas sales this year to pay off enough debt. Despite everything, Mr. Rowen’s prospects are only partially clouded.
“We’ve been through all the ups and downs: my grandparents lived through WWI and WWII and the Great Depression, and that’s how I got Covid,” he said. “We’re making adjustments. I think the worst is over. I think we can survive there at this point.”
But he acknowledged that others might not be so lucky.
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