Job Creation Jumps to 224,000 in June

After disappointing in May, the US labor market rebounded in June by adding a better-than-expected 224,000 jobs. This strong jump in hiring shows that the job market remains solid and throws cool water on the narrative that the economy is in desperate need of interest rate cuts by the Fed.  In addition to a pick-up in hiring, the unemployment rate rose slightly from 3.6 percent to 3.7 percent as more workers entered the labor force. The labor force participation rate – which measures the ratio of those working or looking for work – rose from 62.8 percent to 62.9 percent. This is a sign that the strong labor market is bringing more individuals off the sidelines in search of employment. Annual wage growth remained flat at 3.1 percent.

This is the employment report Fed officials needed

Fed officials have been feeling the pressure from the White House and financial markets to cut interest rates at their next meeting. While today’s strong employment report doesn’t stave off the chance of a .25 percent interest rate cut, calls for a cut of .50 percent are likely out of the question. The Fed has consistently maintained that the labor market is solid, despite slowing global growth and rising trade tensions, and this report backs that claim. Fed officials now have the cover they need to maintain their current rate path or to cut rates, if need be, on their own terms and not out of desperation.

The labor market continues to impress

Employers have now added jobs for 105 consecutive months, proving that the labor market remains resilient in the face of a deteriorating global economy. While annual wage growth has cooled from its highs earlier in the year, it also reduces the Fed’s fear that rapidly rising wages could lead to rising inflation. This gives the Fed more leeway to allow employment to expand faster than previously expected and to reach more underserved workers. One area where this is already happening is in the unemployment rate for workers with less than a high school diploma. The unemployment rate for this segment of the workforce has dropped from 5.6 percent to 5.3 percent over the last year, and was the only group to experience a decline in unemployment in June. 

The US labor market continues to show its resilience and provide the Fed cover in its decision to hold off on interest rate cuts thus far. While an interest rate cut of .25 percent is still possible at the Fed’s meeting later this month, a cut of .50 percent is likely off the table. 

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