Economics

June Jobs Report: Job Growth Soars as Wages Stagnate

The U.S. labor market roared back to life in June, adding 222,000 jobs.

Zions Bank Jul 7, 2017

The U.S. labor market roared back to life in June, adding 222,000 jobs. This is much higher than experts predicted and should quiet some of the concerns that the economy is cooling. In addition to robust hiring, the strength of the labor market appears to be pulling potential workers off the sidelines.

The labor force participation rate, which measures those individuals either looking for work or working, rose from 62.7 percent to 62.8 percent. As more people search for jobs, some find them, and some do not, which can explain why the unemployment rate ticked up marginally from 4.3 percent to 4.4 percent. This is a good sign and is what economists would expect.

One cause for concern, however, is the continued stagnation in wage growth. Annual wage growth has been stuck at 2.5 percent, and in June it was no different. As the unemployment rate remains consistently low and employers struggle to find workers, wages should rise. Keep an eye on this in next month’s report.

Top Takeaways From the Report

  • Employment growth boom: – The labor market added 222,000 nonfarm and 187,000 private jobs in June. These are very positive employment gains, and are a good sign as the economy rolls into the second-half of the year. Job creation for both April and May were also revised upwards, from 174,000 to 207,000, and 138,000 to 152,000, respectively. So far this year, the economy has added roughly 180,000 jobs per month.
  • Wages remain stubbornly stagnant: In the lead-up to June’s report, many economists and market experts were anticipating upward pressure in wage growth, but it didn’t happen. The question of why wages have remained stuck in the mud is a puzzle, and it may not become clear for some time. It could be because the baby boomers are retiring and taking their high paying jobs and raises with them, or because of weak productivity, or perhaps because something has fundamentally changed in the labor market. This is something to watch in upcoming reports.
  • Labor force participation rate rises slightly: While still near-decade lows, the labor force participation rate rose slightly from 62.7 percent to 62.8 percent. The rate, which is the ratio of people who are working or looking for work compared to everyone in the country who could work, has become a key indicator and one the Federal Reserve has been watching closely. The small gain is a good sign of labor market health, indicating potential workers are rejoining the labor force in search of jobs.
  • Unemployment and underemployment both ticked up: The official unemployment rate and the underemployment rate rose marginally to 4.4 percent and 8.6 percent, respectively. Both rates are extremely low, and the increase is not surprising. With the rise in the labor force participation rate, the number of unemployed increased as some of the new labor participants found jobs, while others did not.
  • Growth by industry: The largest job increase was seen in the education and health services sector, which added 45,000 jobs. Of those created, 37,000 were in health care. This trend looks to continue as the overall population in the U.S. continues to age. The professional and business services sector gained 35,000 jobs, and has grown by 91,000 jobs over the last two months. Financial activities added 17,000 jobs and continues its momentum from last month. Employment in the government sector rose by 35,000 jobs, after seeing a decline of 5,000 in May. Most of the jobs were created at the local government level. The natural resources and mining sector continues to expand as it added 8,000 jobs in June. The sector has grown 7 percent since this time last year, and looks to be gaining steam.

The bottom line: The U.S. labor market had a great June, but there are still causes for concern. While the 222,000 jobs added are a great boon for the economy, the lack of wage growth is confounding. This, coupled with persistent low inflation, should be worrying to the Federal Reserve as it looks to balance future rate increases and the unwinding of its balance sheet.

The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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