The labor market showed continued strength in June 2024, with healthy payroll gains and persistent wage growth. Despite a slight increase in the unemployment rate, hiring remains robust as companies choose to retain talent amid a constrained labor supply. Here’s a detailed overview of the latest labor market trends and what they mean for the future.
1. Payrolls and Hiring Trends
- Payroll Increase: Nonfarm payrolls rose by a solid 206,000 in June, following a downwardly revised gain of 218,000 in May.
- Key Sectors Driving Growth:
- Government: +70,000
- Healthcare and Social Assistance: +82,400
- Construction: +27,000
- Moderate Cooling: Q2 2024 saw a slowdown compared to Q1 and the 2023 average, with an average monthly gain of 177,000 compared to 251,000 in 2023 and 267,000 in Q1 2024.
2. Unemployment Rate and Labor Force Participation
- Unemployment Rate: The unemployment rate ticked up to 4.1% in June from 4.0% in May, remaining near historical lows.
- Labor Force Participation Rate: Increased to 62.6% in June, up from 62.5% in May but still below the pre-pandemic level of 63.3%.
- Aging Workforce: The labor force is constrained by retirements and low participation among older workers, with the rate for those aged 65+ at 19.5% compared to 20.6% pre-pandemic.
3. Wages and Hours Worked
- Wage Growth: Average hourly earnings grew by 4.0% year-over-year, matching April and May’s rates.
- Goods Wage Growth: 4.9% year-over-year
- Services Wage Growth: 3.6% year-over-year
- Average Hours Worked: Held steady at 34.3 hours, a sign that labor market conditions are stable without significant stress.
4. Consumer Inflation and Economic Outlook
- Inflation Threat: Elevated wages continue to pose a risk for consumer inflation.
- Fed’s Policy: The Federal Reserve is expected to maintain a restrictive monetary policy to achieve a 2% inflation target, with potential interest rate cuts in November and December 2024.
- Future Expectations: The unemployment rate is anticipated to stay below the natural rate of 4.4%, and consumer price inflation is expected to stabilize at 2% by mid-2025.
5. Sectoral Insights
- Leisure and Hospitality: Added 7,000 workers, with a slowdown in 2024 as the sector recovers from pandemic losses.
- Wholesale Trade: +14,200 jobs
- Transportation and Warehousing: +7,300 jobs
- Information: +6,000 jobs
- Financial Services: +16,000 jobs
- Other Services: +16,000 jobs
- Layoffs: Reported in Manufacturing (-8,000), Retail (-8,500), and Professional and Business Services (-17,000).
6. Hoarding Behavior
- Retention Strategy: Companies are holding onto workers due to challenges in finding qualified candidates and the lessons learned from past wage spikes during the pandemic recovery.
June 2024’s labor market report reflects a period of strong payroll growth and wage inflation amid a slight rise in the unemployment rate. The labor market remains robust, supported by a range of industries and a general trend of companies retaining talent despite broader economic challenges. Looking ahead, we expect the Federal Reserve to maintain a restrictive monetary policy and for inflation to stabilize by mid-2025.
