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U.S. Added 224,000 Jobs in June; Unemployment Rate at 3.7%
(about 1 hour later)
A question has hung over the American economy for the past month: Was the sharp slowdown in job growth in May just another soft patch in a recovery that has set records for its durability? Or was it a warning of more significant trouble?
Employers added 224,000 jobs in June, the Labor Department reported on Friday. Economists had expected a gain of about 170,000.
Friday’s jobs report will help provide the answer.
The unemployment rate was 3.7 percent, up from 3.6 percent in May.
Economists expect the Labor Department’s monthly report, which will be released at 8:30 a.m., to show that American employers added 170,000 jobs in June. That would be a substantial rebound from the disappointing total of 75,000 in May. (May’s figure will also be revised on Friday.) And it would suggest that the job market remained on solid footing, even if it lost some momentum since last year.
Average earnings rose 6 cents an hour from May, and are up 3.1 percent over the past year.
A second straight weak report, however, would spark fresh worries that trade tensions and other factors could be undermining the 10-year economic expansion. And it could raise the stakes for the Federal Reserve’s meeting this month.
The job market roared back to life last month, shaking off a spring slowdown and easing fears that the record-setting economic expansion could be running out of steam.
The rebound from May’s disappointing figure was stronger than economists had predicted, suggesting that trade tensions and cooling global growth have done little to sap the job market’s fundamental strength. Unemployment is near a five-decade low, wage growth is solid and employers have added jobs for 105 consecutive months, easily a record.
That resilience is good news for workers, who are benefiting from what is now, at least unofficially, the longest economic expansion on record. But it could complicate the decision facing Federal Reserve policymakers, who are weighing whether to cut interest rates to forestall a downturn — a jolt of stimulus that investors were expecting, but that now looks less necessary.
June marked the 10th anniversary of the official end of the Great Recession. And unless a new recession has begun (something economists often don’t know for several months), the expansion is now the longest on record.
The recovery has been more remarkable for its durability than for its strength. Hiring has been slower than in many past rebounds, and wage growth has been anemic until recently. Only lately have the gains extended to black and Hispanic workers, the less-educated, and those facing discrimination or other barriers to employment.
The job market picked up last year, at least partly because of tax cuts and government spending increases that provided a short-term boost to economic growth. But those effects are fading. Still, the expansion has repeatedly defied predictions that it was nearing an end.
“We have seen rapid declines like that in this recovery before,” said Martha Gimbel, an economist at the job-search site Indeed. “I think it’s really hard to figure out. Is this just another rapid decline that’s going to go away, or is this a decline we need to start worrying about?”
“We have seen rapid declines like that in this recovery before,” said Martha Gimbel, an economist at the job-search site Indeed. “I think it’s really hard to figure out. Is this just another rapid decline that’s going to go away, or is this a decline we need to start worrying about?”
Here’s what to watch for.
There is no question that the job market has cooled. Employers have added an average of 151,000 jobs per month over the past three months, down from 233,000 in the final three months of 2018. The manufacturing sector, a major driver of growth in the first two years of President Trump’s term, is slowing down, and retailers are shedding jobs. Wage growth, though solid, is no longer accelerating.
What is less clear is whether that slowdown is anything to worry about. Tax cuts and government spending increases gave a temporary jolt to the economy last year, but the effects were always expected to fade. There has been no sign of an increase in layoffs, which have been the most reliable early sign of a downturn in the job market.
“We’re still creating jobs,” said Lindsey Piegza, chief economist at the investment bank Stifel. “We’re still putting Americans back to work on a day-to-day basis, but we’re doing so at a significantly slower clip.”
By most measures, the job market is still fundamentally strong. The unemployment rate, 3.6 percent, is at a nearly 50-year low. Employers have added jobs for 104 consecutive months, easily a record. After such a long stretch of growth, a gradual cooling is hardly surprising.
What worries economists is the possibility that the slowdown will not be so gradual.
“Everyone knew the pace was going to slow,” said Brett Ryan, an economist at Deutsche Bank. “The question is if it’s going to slow more sharply.”
If the economy does shift down further in the months ahead, one likely culprit will be Mr. Trump’s trade war.
If the economy does shift down further in the months ahead, one likely culprit will be Mr. Trump’s trade war.
Hiring has already slowed in manufacturing, a trend that economists and industry executives attribute in large part to uncertainty surrounding tariffs and trade. Data from the Institute for Supply Management this week showed that the industry’s struggles continued in June, although the decline wasn’t as severe as some economists had predicted.
Hiring has already slowed in manufacturing, a trend that economists and industry executives attribute in large part to uncertainty over tariffs and trade. Data from the Institute for Supply Management this week showed that the industry’s struggles continued in June, although the decline wasn’t as severe as some economists had predicted.
“Uncertainty remains very high for manufacturers and for companies with global exposure right now,” said Michelle Meyer, chief economist at Bank of America Merrill Lynch. “They’re still producing to meet demand, but they’re not looking to exceed that. They’re being very cautious.”
“Uncertainty remains very high for manufacturers and for companies with global exposure right now,” said Michelle Meyer, chief economist at Bank of America Merrill Lynch. “They’re still producing to meet demand, but they’re not looking to exceed that. They’re being very cautious.”
The manufacturing slowdown alone probably won’t be enough to threaten the broader economy. But if the pullback spreads to the much larger services sector, that could be a bigger problem. Hiring in services was unexpectedly weak in May, with retailers continuing to cut jobs and other industries also pulling back. Ms. Meyer said the pattern probably reversed in June — but if it didn’t, that would be a troubling sign.
Policymakers at the Federal Reserve will be watching the report closely as they weigh whether to take steps to bolster the economy.
Jerome H. Powell, the Fed chair, has resisted calls from Mr. Trump and other critics — and even from some Fed officials — to cut interest rates. But he has signaled that he is prepared to act if the economy slows further. Investors have interpreted those comments to mean that the Fed will cut rates when it meets this month, although Mr. Powell has stopped short of promising to do so.
Friday’s report could help tip the scales in either direction. A weak report would all but guarantee a cut, economists said, perhaps by as much as half a percentage point. Even a relatively neutral report, or one containing conflicting signals, might be enough to push the Fed toward action. But an unambiguously strong report — solid gains in jobs and wages, perhaps paired with upward revisions to prior months — might keep policymakers on the sidelines until its September meeting or beyond.
The Fed’s complex calculus means that a good jobs report could be bad news for financial markets. Investors want — and expect — a rate cut in July. So a report strong enough to call a cut into question could disappoint investors and cause stocks to fall. The impact could be intensified by the low trading volumes of the holiday week, when many traders are on vacation.
“It’s possible that you see the stock market become a little uneasy if there’s a question about whether the Fed is going to be easing,” Mr. Ryan said. “That’s definitely a risk.”
