US job growth eases, unemployment slightly upticks in June

A Labour Department employment report shows that US employers added 206,000 jobs in June, and the unemployment rate slightly surged to 4.1 per cent.

That, perhaps, could have improved the Fed's odds of taming inflation without triggering a recession. Annual wage growth rose 10 cents to $35. Wages have been at their weakest in three years, complementing an across-the-board moderation in prices during May.

This is another indication of the disinflationary trend that had resumed after a surge in inflation earlier in the year. The report could bolster Fed policymakers' confidence in the inflation outlook and might bring the US central bank closer to interest rate cuts later in the year.

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Optimism still prevails in financial markets concerning a potential September start of the Fed's easing cycle after 2022 and 2023's record aggressive tightening phase. Fed Chair Jerome Powell indicated this week that while the economy had returned to a "disinflationary path," more data was needed before rate cuts.

The economy is moving into a reasonable and sustainable pace of employment growth," said Brian Bethune, an economics professor at Boston College.

He indicated there was no huge wholesale decline that would be an indicator the economy was due for a downturn, confirming the "soft landing" the economy was on.

A Reuters survey of economists expected non-farm payrolls to rise by 190,000 in June after May's surge of 272,000. In fairness, looking at the past twelve months, job gains have run an average of about 230,000 jobs a month.

Economists interviewed by Reuters say at least 150,000 positions per month are needed to keep the economy up with the growing workforce, buoyed by a surge of immigration.

The unemployment rate, which accelerated to 4.0 per cent in May for the first time since January 2022 on volatile youth unemployment, rose to 4.1 per cent in June.

The lagging measure of employment, the Quarterly Census of Employment and Wages, better known as QCEW, so far indicated a much more modest pace of job growth through the fourth quarter of 2023 compared to payroll data.

Other economists argue that data from QCEW—which is based on business reports to state unemployment insurance programs—misses part of the undocumented immigrant contribution. They add that such workers had a significant contribution to employment growth last year. "Payrolls are on track to be revised downward, but we believe that's not because payrolls are overcounting but because QCEW is undercounting," said Sam Coffin, an economist at Morgan Stanley.

The lion's share of the gains in recent months have come from healthcare, leisure and hospitality, and state and local government education, all of which have been rebuilding the staffing lost during the pandemic.

The central bank has held its benchmark overnight interest rate in a 5.25 per cent-5.50 per cent range since last July. Minutes from the Fed's June meeting, which were released on Wednesday, showed that policymakers acknowledged a cooling economy and receding price pressures.

Some economists counter that the labour market is not truly underpinning inflation; there are improvements in worker productivity.

Kevin Rinz, a senior fellow at the Washington Center for Equitable Growth, noted that wage growth had declined from earlier in the expansion and that productivity growth had returned to a normal relationship with wage growth.

"It may not be necessary to further constrain the labour market to get inflation lower," Rinz said.