Hiring picked up the pace in June, as non-farm payrolls increased by a healthy 222k, up from an upwardly revised 152K in May. On top of the solid headline gain, revisions to the previous two months’ of payrolls added 47k positions.
Private payrolls rose by 187k, led by broad based gains across the services sector (+162k). Hiring continues to be strong in health care & education (+45k), leisure & hospitality (+36k), and business services (+35K). Goods hiring picked up (+25k), on gains in construction (+16k) and mining & logging (+8k). That marks eight straight months of job growth for the mining sector off its October 2016 low. Manufacturing continues to be relatively flat (+1k).
Government hiring also picked up (+35k), driven by gains at the state and local level. Federal hiring was more modest (+4k).
The unemployment rate ticked up slightly to 4.4% as 361k workers entered the labor force, reversing much of May’s exodus. The labor participation rate rose 0.1 percentage points to 62.8% – in line with its average over the past 12 months. The growth in the labor force reversed May’s improvement is broader underemployment measures, with the broadest measure (U-6) up 0.2pp to 8.6%.
One soft spot in the report was a middling 0.2% gain in average hourly earnings. Year-on-year, wages were up 2.5% in June, an slight improvement from 2.4% in May. Offsetting that disappointment somewhat was an uptick in hours worked to 34.5 in June.
Key Implications
Well, so much for job gains moderating. A strong June and upward revision to prior months has seen hiring average 180k jobs per month so far in 2017, roughly in line with 2016’s 187k average. The slight uptick in the unemployment rate is not overly surprising given the large drop in the labor force in May, and the unemployment rate is still below what the Fed would consider the "neutral" rate.
We continue to expect monthly job gains to moderate in the coming months, as tight labor markets make new hires tougher to find (see our recent quarterly forecast). But, as long as monthly hiring remains above the 80-120k level required to absorb new entrants to the labor force, labor market slack will continue to diminish.
As far as its full-employment mandate is concerned, the Fed is well justified in gradually removing monetary stimulus. It is the recent softness in inflation that has caused some consternation by FOMC members (see FOMC minutes). The move up in year-on-year wage growth in June is encouraging, although the relationship between labor market tightness and inflation does seem weaker than in the past. We expect the Fed to next focus on shrinking its balance sheet, likely in the fall, before taking rates another quarter point higher at the end of the year.
