The U.S. labor market added more jobs than expected last month, but the unemployment rate rose more than expected, providing mixed results for investors who were hoping for news that would prompt the Federal Reserve to cut interest rates to tame inflation once and for all.
Nonfarm payrolls increased by 206,000 in June, and the unemployment rate rose to 4.1%.
The report was expected to show employers added 190,000 jobs in June, a solid gain although down from a surprisingly robust 272,000 gain in May.
From the Fed’s perspective, it would be almost ideal for hiring to slow to a still-good pace.
This suggests the job market may be slowing enough to pressure employers to raise wages significantly, spurring inflation, but not enough to trigger a wave of layoffs.
But job growth has been unexpectedly strong, despite economists repeatedly predicting that the high interest rates imposed by the Fed would slow the job market.
So far in 2024, the economy is adding a healthy average of 248,000 jobs per month.
That’s close to the 2023 average of 251,000, but down from the impressive gains in 2022 (an average of 377,000 job gains per month) and 2021 (a record 604,000), as the economy rebounded sharply from the COVID-19 recession.
“The labor market has really proven the doubters wrong,” said Andrew Flowers, chief economist at Upcast, which uses technology to help companies hire workers.
Still, Flowers suggested that a Fed rate hike that would significantly increase borrowing costs would ultimately weaken the job market.
“Ultimately, the economy will bend but it won’t break, and the gradual impact of higher interest rates will moderate job growth,” he said.
There are already signs the economy is slowing: U.S. gross domestic product (the total output of goods and services) grew at an annualized rate of just 1.4% through March, the slowest quarterly growth in nearly two years.
Consumer spending, which accounts for about 70% of total U.S. economic activity and has driven the economic expansion for the past three years, grew just 1.5% in the fourth quarter after increasing by more than 3% in each of the previous two quarters.
Moreover, the number of job advertisements has been steadily declining since hitting an all-time high of 12.2 million in March 2022.
Yet after struggling to replace staff over the past two years, employers may not be hiring as aggressively, but they aren’t cutting many staff either, and most workers are enjoying unusual job security.
“As demand cools, companies are cutting jobs,” said Bill Adams, chief economist at Comerica Bank.
“But they’re also laying off fewer workers than they were pre-pandemic. The job market is tight and companies don’t want to cut staff today only to realize they need more workers tomorrow and struggle to find them.”
Between 2022 and 2023, the Fed has raised its benchmark interest rate 11 times, taking its key rate to a 23-year high in an attempt to combat the worst inflation in four decades.
The result was a massive increase in borrowing rates for consumers and businesses that was widely expected to trigger an economic downturn. But that did not happen.
On the contrary, the economy and job market have proven remarkably resilient.
Meanwhile, inflation has been steadily declining from a 2022 peak of 9.1% to 3.3%.
Speaking at a conference in Portugal this week, Fed Chairman Jerome Powell noted that U.S. inflation is slowing again after rising earlier this year.
But he warned that policymakers would need more evidence that inflation was heading toward the Fed’s 2 percent target before cutting rates.
With post wire
