US job growth slows in June; Unemployment rate drops to 3.6%

WASHINGTON, July 7 (Reuters) – U.S. job growth slowed more than expected in June, but labor market conditions remained tight, the unemployment rate retreated from a seven-month high and very strong wage gains continued.

Nonfarm payrolls increased by 209,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for May was revised lower to show payrolls rose by 306,000 instead of 339,000 as previously reported.

Economists polled by Reuters had forecast wages to rise by 225,000. The economy needs to create 70,000-100,000 jobs per month to keep up with the growth of the working-age population. The unemployment rate fell to 3.6% from 3.7% in May.

Despite sluggish job growth, the labor market remains sluggish despite the Federal Reserve’s offer of 500 basis points worth of rate hikes starting in March 2022, its fastest monetary policy tightening campaign in more than 40 years. For now, the economy is helping defy economists’ predictions of a recession.

Average hourly earnings rose 0.4% last month. In the 12 months to June, wages rose 4.4%, matching May’s advance.

Annual wage growth is too high to be consistent with the central bank’s 2% inflation target. After pausing in June, the US Federal Reserve is almost certain to raise interest rates later this month, as signaled by Fed Chairman Jerome Powell.

While high-paying industries such as technology and finance are purging workers, sectors such as leisure and hospitality and local government education are losing employees and experiencing rapid layoffs during the COVID-19 pandemic.

Companies are also hoarding workers in 2021 and early 2022, a legacy of severe labor shortages as the economy recovers from the fallout from COVID-19.

But some economists argued that the labor hoarding masked weakness in the economy, pointing to labor productivity, which fell in the first quarter. They noted that while gross domestic product, a traditional measure of economic growth, was solid in the January-March quarter, an alternative measure, gross domestic income, contracted for two straight quarters.

While businesses are content to hoard workers for now, that could change as lower consumer spending begins to erode profits, economists said, predicting major layoffs.

The slowdown in wage growth has been driven by the loss of high-paying technology and finance jobs, among others, implying a reduction in consumer spending, a key anchor of the economy.

Report by Lucia Muticani; Editing by Daniel Wallis and Chisu Nomiyama

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