Summary: Non-farm payrolls up 209,000 in June, greater than expected; previous two months’ figures revised down by 110,000; jobless rate ticks down to 3.6%, participation rate steady; NAB: suggestive of modest trend slowing of net hiring; employed-to-population ratio steady; underutilisation rate up; annual hourly pay growth steady at 4.4%.
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 still above the average of the last decade.
According to the US Bureau of Labor Statistics, the US economy created an additional 209,000 jobs in the non-farm sector in June. The increase was slightly higher than the 200,000 which had been generally expected and but less than the 306,000 jobs which had been added in May after revisions. Employment figures for April and May were revised down by a total of 110,000.
The total number of unemployed decreased by 140,000 to 5.957 million while the total number of people who were either employed or looking for work increased by 133,000 to 166.951 million. These changes led to the US unemployment rate ticking down from May’s figure of 3.7% to 3.6% as the participation rate remained steady at 62.6%.
NAB economist Taylor Nugent said the figures were “suggestive of modest trend slowing in the pace of net hiring but still robust pace of employment gains.”
Shorter-term US Treasury yields fell on the day but longer-term yield rose. By the close of business, the 2-year yield had shed 5bps to 4.95%, the 10-year yield had gained 3bps to 4.07% while the 30-year yield finished 4bps higher at 4.04%.
In terms of US Fed policy, expectations of a lower federal funds rate in the first half of 2024 firmed. At the close of business, contracts implied the effective federal funds rate would average 5.11% in July, 3bps more than the current spot rate, and then increase to an average of 5.30% in August. December futures contracts implied a 5.40% average effective federal funds rate while June 2024 contracts implied 4.965%, 10bps less than the current 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 remained steady at 60.3%, some way from the April 2000 peak reading of 64.7%.
Apart from the unemployment rate, another measure of tightness in the labour market is the underutilisation rate and the latest reading of it registered 6.9%, up from 6.7% in May. Wage inflation and the underutilisation rate usually have an inverse relationship and hourly pay growth in the year to June remained steady after revisions at 4.4%.
