U.S. employers added fewer jobs than expected in June

Hourly earnings flat, more drop out of workplace driving down rate

Total nonfarm payroll employment increased by 223,000 in June,  below expectations, and May’s report was revised downward from 280,000 to a modest 254,000.

The unemployment  rate declined to 5.3%, the U.S. Bureau of Labor Statistics reported today, but entirely due to people dropping out of the labor force as the employment-to-population ratio slipped back by 0.1 percentage points to 59.3%.

This is also consistent with a sharp drop in the number of long-term unemployed, with many of these workers likely dropping out of the labor market.

Average hourly earnings were flat despite expectations of a 0.2%, and a big drop from last month's 0.3%.

Job gains occurred in professional and business services, health care, retail trade, financial activities, and in transportation and warehousing.  

The labor force participation rate declined by 0.3 percentage point to 62.6% in June, comparable to mid-1970s levels.

Commercial banking employment declined by 6,000. Employment in financial activities has grown by 159,000 over the year, with insurance accounting for about half of the gain. Employment in other major industries, including construction, manufacturing,  wholesale trade, information, and government, showed little or no change over  the month.

“Today’s jobs report was decent enough, as job gains came in at the trend-like pace witnessed so far this year. An average monthly gain of about 208,000 jobs through the first six months implies 2.5 million jobs for the year—not as great as last year but still a solid number,” said Doug Duncan, chief economist for Fannie Mae. “Details were soft, including negative revisions and flat average hourly earnings and average workweek. The 0.2 percentage point decline in the unemployment rate to a seven-year low masks the bleak news that the labor force participation rate fell three-tenths to the lowest reading since October 1977.

“Particularly disappointing was the unchanged construction payrolls figure, weighed down by the largest drop in residential construction employment in nearly five years,” Duncan said. “However, as housing demand is heating up amid lean inventories, boosting rents and home prices, we expect home building activity and residential construction employment to pick up.”

The increased demand could drive up construction costs through increased construction wages needed to bring in skilled workers.

“One concern is that builders may find it increasingly difficult to hire skilled workers without substantially raising wages, which are already increasing at a strong clip. We continue to see a bounce-back in second quarter economic growth, building momentum into the second half of the year, with housing acting as a tailwind,” Duncan said.

The average workweek for all employees on private nonfarm payrolls was 34.5 hours in June for the fourth month in a row. The manufacturing workweek for all employees edged down by 0.1 hour to 40.7 hours, and factory overtime edged up by 0.1 hour to 3.4 hours. Average hourly earnings of private-sector production and nonsupervisory employees edged up by 2 cents to $20.99 in June.

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