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Employment slows in June

Average hourly earnings are running 4.2% higher on the year.

Payrolls are expected to rise by 215,000 in June after rising a much-stronger-than-expected 339,000 in May. The May report had an unusually low response rate, which means it could be revised. Recent revisions have been to the upside. 

Public sector payrolls are expected to account for about 20% of total gains for the month, driven by gains in education. June is a month when layoffs tend to occur; anything less than usual will show up as an increase in employment. Schools are still short-staffed and likely to hold onto workers longer than usual.

Gains in health care and social assistance, which includes childcare, and professional business services are expected to drive overall payroll employment. The leisure and hospitality category has slowed while continuing to catch up from the pandemic. 

Construction employment is expected to post solid gains. Single-family home construction is coming back and adding to the boom in chip and electric vehicle plants. State and local governments are scrambling to spend the infrastructure funds that have filled their coffers for schools and roads. HVAC systems are finally being replaced. 

The outliers are expected to be manufacturing and retail employment. The Purchasing Manager’s Index remains weak for hiring in the manufacturing sector. However, staffing shortages have mitigated the need for layoffs. 

Average hourly earnings are forecast to rise by 0.3%, well in line with what we have seen all year. That translates to 4.2% increase from a year ago, a slight slowdown from the pace of May. Note that wages accelerated rapidly in the first half of 2022, which makes year-on-year comparisons more difficult.  

Separately, the unemployment rate is expected to edge down a tick to 3.6%, after hitting 3.7% in May.  Participation in the labor market is expected to hold at 62.6%, the same as it has been the last three months. Participation of prime-age (25-54 year old) workers has exceeded the pre-pandemic level in recent months. Women of color have driven the rebound in the prime-age participation rate. Older workers, especially white men, are still lagging in their participation.

The number of people out on vacation and unable to work is expected to remain near a record for the month. Hence, the surge in traffic at airports. Travel abroad has picked up even as travel in the U.S. has waned a bit. Anecdotal reports suggest that the vacation rental market has softened from a pandemic-induced peak of 2021 but are still above pre-pandemic levels in most places. 

The outliers are expected to be manufacturing and retail employment.

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Meet our team

Image of Diane C. Swonk
Diane C. Swonk
Chief Economist, KPMG US

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