Economic Report: Every rose has its thorn: Strong U.S. jobs report contains a few troubling signs


The rosy U.S. jobs report in June wasn’t all good. There were a few potential thorns that suggests trouble lies ahead.

First the good news. The U.S. added 372,000 new jobs last month, well above the 250,000 Wall Street forecast. The unemployment rate also stayed near a half-century low of 3.6%.

The robust employment report countered recent talk that the U.S. could enter a recession soon. The Federal Reserve is sharply raising interest rates to cool off a scorching labor market and tame high inflation, but rising rates tend to slow the economy to a crawl.

The central bank’s strategy might already be starting to work, however.

How so? The increase in new jobs last month was derived from a survey of businesses. Yet a separate survey of households found fewer people working.

Not only that, but the household survey showed employment falling in two of the past three months.

The last time that happened? In the first two months of the pandemic, when the U.S. lost a stunning 21 million jobs.

“The separate household survey laid an egg in June,” said Sophia Koropeckyj, managing director at Moody’s Analytics.

Another bad sign in the household survey: the share of people 16 or older who have a job or are looking for one hit a wall.

The so-called labor-force participation rate slipped again to 62.2% from a pandemic high of 62.4 in the early spring. The participation rate hangs 1.2 points below its pre-pandemic level, the equivalent of about 1.5 million missing workers.

“The high number of people not returning to the work force is one of the nagging problems with the labor market right now,” said Jeffrey Roach, chief economist at LPL Financial. 

Now these potential thorns could turn out to be something differently entirely.

For one thing, the household survey is less accurate than the government’s poll of business establishments. It’s more volatile and subject to frequent and large revisions.

The apparent stall in household employment, what’s more, might simply reflect a shortage of workers instead of a rapidly declining number of available jobs and companies willing to hire.

Job opening are still extremely high at 11 million-plus, after all, and wages rose again in June. Hourly pay has risen at a sharp 5.1% pace over the past year.

If the labor market had suddenly gotten weak-kneed, wage growth would probably slow more quickly.

The decline in the labor force in June “is hard to explain,” said chief economist Aneta Markowska of Jefferies LLC, in light of the strong demand for labor.

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