United States: Payroll growth surprises to the upside, unemployment rate inches up in June
July 7, 2017
The U.S. labor market closed the second quarter recording healthy gains, with the strong pace of job creation showing no signs of abating. Non-farm payrolls rose by 220,000 in June, roaring past market analysts’ expectations of 178,000 new jobs. The print was also above May’s reading, when employers added 152,000 additional jobs, according to upwardly revised figures (previously reported: +138,000).
The details in June report were equally encouraging. Private payrolls rose by 187,000, with the largest gains being recorded across the services sector. Healthcare services—one of the start performers so far this year—added 37,000 new jobs, while social assistance employment and jobs in financial activities also posted strong numbers. In addition, government hiring also picked up (+35,000 new jobs), with the bulk of the increase recorded in both the state and local level. In fact, government hiring reached a nearly one-year high in June.
Although the pace of job creation was undoubtedly strong, the unemployment rate inched up from May’s 16-year low of 4.3% to 4.4% in June. The uptick, however, was the result of an increase in the labor participation rate, meaning that the headline figure should be taken with a pinch of salt. More concerning was the average hourly earnings, which was unchanged yet again at 2.5%.
The weaker-than-usual relationship between labor market tightness and inflation has had analysts scratching their heads. While the Federal Reserve is unlikely to be deterred from further removing monetary stimulus, cracks are starting to show as inflation has repeatedly failed to gain traction. All told, as far as the Fed’s full-employment mandate is concerned, policymakers are well justified to continue hiking rates.
Author: David Ampudia, Economist