Summary: Non-farm payrolls up by 372,000 in June, greater than expected; previous two months’ figures revised down by 74,000; jobless rate steady at 3.6%, participation rate slips to 62.2%; little evidence of softer US labour market; jobs-to-population ratio declines; underutilisation rate falls to 6.7%; annual hourly pay growth slows to 5.1%.
The US economy ceased producing jobs in net terms as infection controls began to be implemented in March 2020. The unemployment rate had been around 3.5% but that changed as job losses began to surge through March and April of 2020. The May 2020 non-farm employment report represented a turning point and subsequent months provided substantial employment gains. Changes in recent months have been generally more modest but also well above the long-term monthly average.
According to the US Bureau of Labor Statistics, the US economy created an additional 372,000 jobs in the non-farm sector in June. The increase was in greater than the 250,000 which had been generally expected but slightly lower than the 384,000 jobs which had been added in May after revisions. Employment figures for April and May were revised down by a total of 74,000.
The total number of unemployed decreased by 38,000 to 5.912 million while the total number of people who are either employed or looking for work decreased by 0.353 million to 164.023 million. These changes led to the US unemployment rate remaining stable at April’s rate of 3.6%. The participation rate assisted by slipping from May’s rate of 62.3% to 62.2%.
“If a softer US labour market is part of the solution to the United States’ inflation problem, there was precious little hard evidence of it in Friday’s June payrolls report,” said NAB’s Head of FX Strategy within its FICC division Ray Attrill
US Treasury yields increased on the day, especially at the long end. By the close of business, the 2-year yield had added 2bps to 3.02%, the 10-year yield had gained 7bps to 3.00% while the 30-year yield finished 6bps higher at 3.19%.
In terms of US Fed policy, expectations for a higher federal funds rate over the next 12 months firmed. At the close of business, July contracts implied an effective federal funds rate of 1.68%, 10bps higher than the current spot rate, while September contracts implied 2.495%. July 2023 futures contracts implied an effective federal funds rate of 3.445%, 286bps above the spot rate.
One figure which is indicative of the “spare capacity” of the US employment market is the employment-to-population ratio. This ratio is simply the number of people in work divided by the total US population. It hit a cyclical-low of 58.2 in October 2010 before slowly recovering to just above 61% in late-2019. June’s reading declined from 60.1% to 59.9%, some way from the April 2000 peak reading of 64.7%.
Wage growth spiked in the US during the early stages of pandemic restrictions as lower-paid jobs disappeared at a faster rate relative to higher-paid jobs, disrupting the usual relationship between wage inflation and unemployment rates. Normally, wages tend to grow as the supply of labour tightens.
Apart from the unemployment rate, another measure of tightness in the labour market is the underutilisation rate. The latest reading of it fell from 7.1% in May to 6.7%. Wage inflation and the underutilisation rate usually have an inverse relationship but hourly pay growth in the year to June still slowed from May’s revised rate of 5.3% to 5.1%.