Economic Update: Employment Report

Gary Pzegeo, CFA

July 07, 2023

A summary of the June Employment Report

The U.S. economy added 209,000 jobs in June.  The increase was lower than market expectations for a gain of 230,000.  Job gains in the prior two months were revised lower by 110,000.  Markets were building in higher expectations based on surprising strength in economic data in recent days.  June’s increase was the lowest since December 2020, but the pace of deceleration remains slow.  The three-month average increase of 244,000 is just 34,000 below the six-month average.  The Bureau of Labor Statistics (BLS) Establishment Survey noted mixed results by economic sector.  Government, Health and Education sectors added a total of 133,000 jobs while the Retail and Transport/Warehousing sectors lost a total of18,000.

The slower pace of job gains remains in-line with trends in labor force growth, which leads to little change in the unemployment rate derived from the BLS’s Establishment Survey.  June’s rate of 3.6% is equal to the level from a year earlier and the rate has moved in a narrow range of 0.3% for the last 16 months.

Average hourly earnings – a proxy for wage growth – rose 0.4% for the month and 4.4% vs. a year ago. The monthly data was 0.1% higher than consensus expectations and the prior two months were revised higher.   The 3-month annualized rate of growth accelerated to 4.7%.  Average weekly hours worked – a proxy for economic growth – rose for the month, but the quarterly average is slightly lower than the previous quarter’s average.

Source: Bloomberg, US Bureau of Labor Statistics.

Bottom line:  Labor market strength may be waning, but the pace of growth is not slow enough to bring wage growth to a non-inflationary rate.  The Federal Reserve (Fed) will likely see today’s report and other recent releases as signals to proceed with another rate increase of 0.25% at their next meeting on July 26.  Markets have been preparing for another Fed hike in recent days  and short-term yields were little changed in response to the report. 

Gary Pzegeo, CFA  joined the firm in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.