US jobs report for June is likely to point to slower but still-solid hiring

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WASHINGTON (Reuters) – The U.S. labor market likely slowed last month but remained fundamentally healthy, which would be good news for the Federal Reserve as it seeks to fully tame inflation.

When the Labor Department releases its latest jobs report on Friday, it is expected to show that employers added 190,000 jobs in June — a solid gain, but down from the surprisingly strong 272,000 in May. The unemployment rate is likely to remain at a low 4%, according to forecasters surveyed by data firm FactSet.

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From the Fed’s perspective, a slowdown in hiring to a still-decent pace would be ideal. That would signal that the labor market has slowed enough to ease pressure on employers to raise wages sharply, which could fuel inflation, but not enough to trigger waves of layoffs.

Yet economists have repeatedly predicted that the labor market would lose steam in the face of higher interest rates engineered by the Federal Reserve, only to see employment gains show unexpected strength. The economy has added a healthy average of 248,000 jobs per month so far in 2024. That’s close to the 2023 average of 251,000, though short of the impressive gains in 2022 (averaging 377,000 jobs added per month) and 2021 (a record 604,000) as the economy roared back from the COVID-19 recession.

“The labor market has proven the skeptics wrong,” said Andrew Flowers, chief economist at Upcast, which uses technology to help companies hire workers.

However, Flowers noted that the much higher borrowing costs resulting from the Fed’s interest rate hikes will ultimately weaken the labor market.

“Ultimately, the economy will bend, but it will not break. The slow bite of higher interest rates will slow job growth,” he said.

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Signs of an economic slowdown are already emerging. US gross domestic product – the total output of goods and services – grew at a sluggish 1.4% annual rate from January to March, the slowest quarterly rate in nearly two years.

Consumer spending, which accounts for about 70% of total U.S. economic activity and has been the engine of expansion for the past three years, rose just 1.5% in the fourth quarter after growing more than 3% in each of the previous two quarters. In addition, the number of job openings has been steadily declining since peaking at a record 12.2 million in March 2022.

However, while employers may not be hiring aggressively after struggling to fill vacancies over the past two years, they are not cutting staff either. Most workers enjoy an unusual level of job security.

“Businesses are hiring fewer workers amid cooler demand conditions,” said Bill Adams, chief economist at Comerica Bank. “But they are also laying off fewer workers than they did before the pandemic. The labor market is tight, so businesses don’t want to cut jobs today only to realize they need more workers tomorrow and then struggle to find them.”

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In 2022 and 2023, the Federal Reserve raised its benchmark interest rate 11 times in an attempt to beat back the worst inflationary spell in four decades, taking its key rate to its highest point in 23 years. Painfully high borrowing costs for consumers and businesses were widely expected to trigger a recession. But that didn’t happen. Instead, the economy and labor market have shown surprising resilience.

Inflation, meanwhile, has steadily declined from a peak of 9.1% in 2022 to 3.3%. In remarks at a conference in Portugal this week, Federal Reserve Chairman Jerome Powell suggested that U.S. price increases had slowed again after higher readings earlier this year. But he cautioned that more evidence that inflation is moving toward the Fed’s 2% target will be needed before policymakers cut rates.

Fed officials will certainly be watching Friday’s jobs report for signs of easing wage pressures. According to FactSet, forecasters believe average hourly earnings rose 3.9% last month from a year earlier. That would be the smallest such gain since June 2021. But it would still exceed the 3.5% average annual wage growth that many economists consider consistent with 2% inflation.

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The jobs report comes as Americans weigh the health of the economy ahead of the November presidential election. Many blame President Joe Biden for rising prices that continue to strain their household budgets.

Some Americans are also feeling the effects of the weak job market. Among them is Caleb Hennington of Little Rock, Arkansas, who was laid off from his marketing job in March.

“Since then, it’s been really hard to find a new opportunity,” said Hennington, 32, who said he has applied for more than 250 jobs.

“He said most places would just ignore him after saying they would get back to me quickly to follow up. It was mentally exhausting, and even though I had been in marketing for 10 years, I was struggling to find a new role. I had to resort to taking freelance and part-time jobs just to get some income.”

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