Payrolls moderate in June

Payroll employment jumped by 209,000 in June after a downwardly revised gain of 306,000 in May. We have generated a total of 1.7 million new paychecks this year, well below the 2.7 million of a year ago, but nearly double the pace of the 2010s.  

The rise in June payrolls was the first downside surprise in 15 months. The response rate for the survey was 66% in June, which is up from the low of 54.7% in May. Both had unusually low response rates and reflect survey fatigue. Another large revision cannot be ruled out when the data for July is calculated.

Government hiring alone added 60,000 jobs as state and local governments did not lay off as many teachers as usual and hired up for infrastructure projects. Schools are finally making upgrades to infrastructure that were funded during the pandemic. That includes upgrades to HVAC systems.

Health care and social assistance jumped by 65,200 jobs, buoyed by hiring at hospitals, nursing homes and individual and family services. Construction employment rose by 23,000 with gains concentrated in specialty residential construction. Single-family home construction has rebounded in recent months as builders stepped up incentives to sell amidst rising rates.

Leisure and hospitality and professional services each added 21,000. Gains in leisure and hospitality were in accommodations, amusement parks, gambling and recreation. Hiring by restaurants was essentially unchanged during the month. Temporary hiring fell during the month, which means permanent hires in professional services were much greater.

The June Institute for Supply Management (ISM) index for the services sector was strong with an acceleration in orders, hiring and business activity. That suggests a tailwind going into the summer travel season. TSA throughput hit new records during the Fourth of July holiday.

Manufacturing was mixed with an increase in durable goods production, including vehicles, more than offsetting a drop in nondurable goods. The June ISM figures were still weak, which suggests a further slowdown next month.

Hiring in the information sector was unchanged. The writers have been on strike since early May, while layoffs in the tech sector continue.

Losses were in retail and transportation and warehousing. That suggests that the pivot from spending on goods to services continues.  

The ADP report earlier in the week that hiring by small businesses – those with less than 250 employees – more than offset layoffs at large firms. A catch-up in legal immigration and new entrants helped buoy gains in the labor force over the last year.

Average hourly earnings rose 0.4% and were up 4.4% from a year ago, the same as the revised figure for May. That is a significant slowdown from the post-pandemic peak of 5.8% in April 2022 but still well above the level consistent with 2% inflation, given the poor performance of productivity growth. 

Wages in leisure and hospitality actually accelerated for the second month in a row, which is good for workers but only if it can be contained. Financial activity and manufacturing wages also picked up significantly during the month. The only notable drop was in information, which was hit by the writers’ strike and layoffs in the tech sector.

Separately, the unemployment rate slipped to 3.6% in June, off slightly from the 3.7% pace of May. White unemployment fell to 3.1% in June, down 0.2% from May. Asian unemployment rose slightly to 3.2% during the month. Black unemployment rose to 6% in June, up 0.4% from May. Hispanic unemployment rose to 4.3% in June, up 0.3% from May.

Participation in the labor force held at 62.6%, a post-pandemic high, but is still down from a peak of 63.3% in February 2020. The participation rate among prime-age women (25-54 years old) hit a new all-time high during the month. The prime-age participation rate by men also moved up slightly. Participation by the over-55 crowd continued to fall and is now two full percentage points below the level in February 2020. Early retirees are not returning to the labor force as many had hoped.

The ranks of those absent due to vacation hit 4.7 million in June, close to the level hit a year ago and the norms we saw pre-pandemic. We are likely to come close to another monthly record in July, given the surge in travel around the Fourth of July.

The ranks of those out sick and unable to work slipped below one million for the second consecutive month. That is the lowest since November 2019 and more in line with pre-pandemic norms: Something to celebrate.