Headline: U.S. employers added 222,000 jobs in June, which was above the consensus forecast of 170,000 jobs. Incorporating revisions for April and May, which increased nonfarm payroll employment by 47,000, monthly job gains have averaged 194,000 over the past three months. The unemployment rate ticked up slightly to 4.4% from 4.3%, and the labor force participation rate also rose slightly to 62.8% from 62.7%.
Executive Summary: While the current unemployment rate is low, there is no clear trend in overall job generation. Certain sectors, such as health care, continue to see growth. Other sectors, such as construction, manufacturing and transportation, remain flat.
Fed Watch: This report is unlikely to change the Fed’s current approach to monetary policy. Based on guidance and general commentary, another increase in the federal funds rate is likely this year. The Fed is also likely to issue formal guidance in September about its plan to shrink its balance sheet over time.
Labor Force Participation: The labor force participation rate increased slightly to 62.8%. While the monthly number is volatile, it has remained between 62.4% and 63.0% since August 2013. Such stability is encouraging given that the aging workforce is a headwind to increased participation, but without a significant increase in labor availability the pace of hiring will be limited.
Wage Inflation: Average hourly earnings of private nonfarm payrolls increased by 4 cents to $26.25 in June. Over the past 12 months, average hourly earnings have risen by 2.5%. From May 2016 to May 2017, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 1.9% on a seasonally adjusted basis, which is close to the Fed’s 2% goal. While the number of job openings remains high, many employers continue to face difficulty finding qualified workers.
Job Growth Outlook: The economy added more than 2 million jobs in the past 12 months, which is similar to the pace of 2016 but down from the pace between 2012 and 2014. We expect job growth will continue to slow from its previous 12-month average to 150,000 per month for the remainder of the year due to tight labor market conditions.
Retail: In an improvement from the past few months, preliminary figures show that retailers added 8,100 jobs in June, and retail employment is up 24,500 from a year ago. Employment in food services & drinking places also continued on an upward trend in June, adding 29,000 jobs, and is up by 277,000 jobs over the past year.
Industrial: Preliminary figures indicate that growth in transportation & warehousing employment remained positive in June. Because this is a relatively small employment sector, absolute job numbers do not reflect the huge absorption numbers. As automation continues to impact the warehouse sector, employment may flatten. Given the tight labor market, this may be necessary for absorption to remain positive.
Office: Professional & business services continued to improve in June, preliminarily adding 35,000 jobs. It has grown by 624,000 over the past 12 months. As the pace of hiring slows, a deceleration in office-using employment is likely and this will impact office demand. Health care continues to add jobs at a robust pace. Some of these jobs are office-, lab- or life science-building-based, which bodes well for absorption in those categories.
Construction: Employment in other major industries, including construction and manufacturing, showed little change in June. Some specialty construction jobs continue to face significant labor shortages, so a continued decline in job growth for this sector would not be surprising. Rising wages may draw more workers in, but acquiring the necessary skills for certain trades takes time and will not be relieved in the short term.