What happens next Where's my refund? Best CD rates this month Shop and save 🤑
Jobs Report

June jobs report: U.S. economy adds 213,000 jobs but unemployment rises to 4%

Some businesses are finding it harder to find qualified workers.

Employment growth was strong for a second consecutive month in June as the economy added 213,000 jobs despite worker shortages and mounting U.S. trade tensions.

The unemployment rate, which is calculated from a separate survey, rose from an 18-year low of 3.8% to 4% as 600,000 Americans, including many discouraged workers on the sidelines, streamed into a favorable job market, the Labor Department said Friday.

Economists expected 195,000 payroll gains, according to a Bloomberg survey.

Many experts have expected job gains to slow because the low employment rate is making it harder for firms to find workers. Also, President Donald Trump has slapped tariffs on imports that have provoked tit-for-tat countermeasures by other countries in an escalating trade war that’s starting to unnerve U.S. corporations.

But before Friday’s report, monthly additions have averaged about 200,000 this year. And Goldman Sachs says the tight labor market tends to boost hiring in June as companies aggressively target students and graduates.

More:Salaries: US wage growth in June was 2018's strongest so far

More:Millionaire survey: Cash is king once again for wealthy investors

More:Population migration patterns: US cities Americans are flocking to

Wage growth holds steady

Average hourly earnings increased 5 cents to $26.98, keeping the annual increase unchanged at 2.7 percent. Pay hikes haven’t picked up as much as anticipated in light of the historically low jobless rate, but economists expect annual gains to reach 3 percent by the end of the year.

An acceleration in pay increases could prompt the Federal Reserve to raise interest rates more sharply to head off a spike in inflation. The unchanged 2.7 percent rise in June helps keep the Fed on a gradual path of rate hikes.

 

Industries that are hiring

Employment gains were broad-based as the private sector added 202,000 jobs, and federal, state and local governments added 11,000.

Education and health care led the gains with 54,000. Professional and business services added 50,000, and leisure and hospitality 25,000.  Manufacturers added 36,000 jobs despite the trade concerns, and construction added 13,000. Retailers, however, cut 22,000 jobs as the sector continues to grapple with a shift from physical stores to online shopping.

 

Labor force grows

The 601,000 increase in the labor force – made up of people working and looking for jobs – overwhelmed the additional 102,000 who were employed, according to the household survey. That’s what caused the unemployment rate to rise to 4%, the highest level since March.

But the gain in the labor force is good news because it means more Americans on the margins are being drawn into a job market that’s providing more opportunities for workers. The portion of Americans in the labor force rose to 62.9 percent from 62.7 percent. However, that share is eventually expected to resume a longer-term decline as Baby Boomers continue to retire in large numbers. That will keep pushing down the jobless rate, says Ian Shepherdson of Pantheon Macroeconomics. He expects unemployment to reach 3.5 percent by the end of the year.

What it means

The report provided positives all around.

Job growth topped 200,000 for a second month in a row and averaged 215,000 for the first half of the year despite the worker shortages and trade worries. What's more, gains for April and May were revised up by 37,000.

Sure, the unemployment rate rose, but that’s because more people were drawn into the worker-friendly labor market, not because payroll gains were weak.

For the Fed, the report presents a bit of a dilemma. On the one hand, the unemployment rate and stagnant wage growth help keep a lid on inflation, providing little reason to speed up rate increases. That’s good news for markets, which tend to rise when bond rates are low.

Still, the healthy job gains will likely push down unemployment the rest of the year, economists say.

“The job market is strong enough to warrant continued gradual rate hikes,” says Leslie Preston, senior economist at TD Economics.

 

Featured Weekly Ad