WASHINGTON, July 7 (Reuters) – The U.S. economy added the fewest jobs in 2-1/2 years in June, but continued strong wage growth pointed to still tighter labor market conditions, ensuring the Federal Reserve raised interest rates again. Later this month.
A closely watched employment report from the Labor Department on Friday showed 110,000 fewer jobs were created in April and May, indicating that higher borrowing costs continue to weigh on businesses. Last month there was an increase in the number of people working part-time for economic reasons, in part due to a slowdown in work or business conditions that cut their hours.
Still, the pace of job growth remains strong by historical norms and is further evidence that the economy is far from a dire recession.
“The labor market appears to be cooling, but not fast enough to prevent the Fed from hitting the brakes on July 26,” said Sal Quattieri, senior economist at BMO Capital Markets in Toronto.
Nonfarm payrolls rose by 209,000 jobs last month, the smallest gain since December 2020, the firms’ survey showed. Economists polled by Reuters had forecast wages to rise by 225,000. The economy needs to create 70,000-100,000 jobs per month to keep up with the growth of the working-age population.
While high-paying industries such as technology and finance are purging workers, sectors such as leisure and hospitality and local government and education are experiencing rapid retirements, losing employees during the Covid-19 pandemic.
Government employment increased by 60,000, boosted by a 59,000 increase in state and local government wages. Government employment is 161,000 below pre-pandemic levels. Health care payrolls increased by 41,000 jobs, reflecting hiring in hospitals, nursing and residential care facilities, and home health services.
Construction employment increased by 23,000. The housing market is showing signs of recovery after being hit by a rise in mortgage rates. The Fed has raised its policy rate by 500 basis points from March 2022, its fastest monetary policy tightening campaign in more than 40 years.
There was also an increase in industrial and business services employment. Retirement and Hospitality Wages increased by 21,000. Employment in the industry is 369,000 below its pre-pandemic levels.
Average hourly earnings rose 0.4% last month. In the 12 months to June, wages rose 4.4%, matching May’s advance.
Annual wage growth is too high to be consistent with the central bank’s 2% inflation target.
US stock markets started with a decline. The dollar fell against a basket of currencies as U.S. Treasury yields rose.
The Household Survey, from which the unemployment rate was obtained, showed strong employment gains. This is more than the increase in the number of people entering the labor force. As a result, the unemployment rate fell to 3.6% in June from a seven-month low of 3.7% in May.
But the number of people working part-time for economic reasons rose by 452,000 to 4.2 million, partly reflecting an increase in those who cut hours due to sluggish work or business conditions.
Report by Lucia Muticani; Editing by Daniel Wallis, Chisu Nomiyama and Andrea Ricci
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