The U.S. labor market is slowing, gradually. In June, the US economy added 209,000 jobs and the unemployment rate ticked down to 3.6%. Overall, this jobs report neither shows the bottom falling out, nor sustained overheating. Instead, it’s a slow and steady normalization.
Put them in, Coach! Participation increases again
Prime-age labor force participation increased yet again, to 83.5%, the highest since 2001. Though demand for labor remains unmatched, the labor shortages that employers sighed over a year ago have definitely subsided some. This strong labor market has pulled workers in from the sidelines.
Once again, the prime-age female labor force participation rate hit an all-time high, now at 77.8%! As we noted last month, female workers were hit the hardest during the onset of the pandemic, but the “she-cession” is far in the past as women come back stronger than ever.
The number of months that the unemployment rate has been below or at 4% is the 4th longest on record – a 19-month run of low unemployment is a testament to this enduringly strong labor market.
However, looking deeper at demographic shifts in the market shows some troubling signs. After reaching a historic low in April, the Black unemployment rate jumped strongly up to 6.0%. The Latino unemployment rate increased as well. Though a rising tide lifts all boats, a receding tide often leaves the most disadvantaged workers beached. These rates have not reached worrisome levels yet, but are something to watch if the labor market continues to slow.
In a good sign for the Fed, wage growth is slowing:
Average hourly earnings, not adjusted for inflation, decreased to 4.4% (3-month annualized rate) in June for private sector non-managers. As always, take average hourly earnings with a grain of salt – the measure is notoriously plagued by composition issues – but the slowing in wage growth, while not ideal for employees, is good news for the Federal Reserve.
Is temp employment a sign of a recession or labor hoarding?
Across industries, growth was varied. Some of the usual hitters, like healthcare and professional and business services, managed strong growth of +41,000 and +21,000, respectively. Elsewhere in the report, government employment increased by 60,000, close to a complete recovery from the pandemic hit. Less encouraging is the marked slowdown in the leisure and hospitality sector, which added a tepid 21,000 jobs.
Other industries slowed significantly, including the potentially prophetic temporary help services. Companies tend to cut temporary jobs before engaging in all-out layoffs, so decreases in this sector can worry some economists.
Conclusion
This jobs report shows a slow and steady normalization of the U.S. labor market. Gains were strong, the unemployment rate was impressively low, and participation has continued to pick up. The worrisome signs, like the increase in Black unemployment and the decrease in temporary services jobs, might mean a worsening labor market in the longer run. But, the Black unemployment rate remains low by historical standards, if not by recent benchmarks. And, the decrease in temporary employment could be a sign of an upcoming recession, or a signal of employers’ commitment to labor hoarding. The labor market has held up incredibly well against the Federal Reserve’s tightening cycle and continues to do so, even as there are some signs of softening.
Co-Author: Liz Anderson
