The U.S. economy continues to create jobs. But the trend clearly continues to cool.
According to BLS data released Friday, employers added 206,000 jobs in June. It was the 41st straight month of gains, reaffirming an economy with positive net demand for labor.
However, this is down from 218,000 in May. The three-month moving average is at a low 177,000.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — rose to 4.1%. While the rate continues to hover near 50-year lows, it’s also at its highest level since November 2021.
The cooling demand for labor has come with a cooling pace of wage growth. Average hourly earnings were up 3.9% from the previous year, the lowest rate since June 2021.
“The trend is clear: the labor market is cooling off,” Indeed Hiring Lab’s Nick Bunker said. “The question is whether the recent run of data is simply a continuation of the relatively painless moderation of the past few years or the beginning of something more damaging. The labor market chugging along for now, but evidence is mounting that iif it continues to slow down, it could stall.”
Throughout this cooling phase, labor market activity has been healthy enough to keep the Federal Reserve from having to turn dovish with monetary policy.
But in recent months, the levels have become increasingly worrisome. And calls for the Fed to loosen monetary policy and cut interest rates have gotten louder.
“The unemployment rate is climbing & payroll growth is slowing,” Renaissance Macro’s Neil Dutta said. “Conditions in the labor market are cooling off. The trade-offs for the Fed have shifted. If they don't cut this month, they ought to make a strong signal a cut is coming in September.”
The Fed is scheduled to make its next monetary policy announcement on July 31.
For more context…
There’s not much more to say that hasn’t already been covered in past issues of TKer. So for those of you catching up, I’ll point you to them here:
Many labor market metrics have been cooling for a while. For more, read: The hot but cooling labor market in 16 charts 📊🔥🧊
Amid all this, layoff activity has been depressed, which helps explain why the economy has avoided a recession. For more, read: Every macro layoffs discussion should start with this key metric 📊
On the same note, job openings have come down substantially while the unemployment rate has barely budged. For more, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
The fact that cooling labor market trends have come with a significant decline in broad inflation measures confirms this has been the good kind of deteriorating labor market 👍
Economic metrics outside of the labor market have also cooled. For more, read: The economy has gone from very hot to pretty good 😎 and The US economy is now less ‘coiled’ 📈
A slowing economy is not necessarily bad for the stock market. In fact, it might be a good thing. For more, read: A bullish way the stock market might not look like the economy in 2024 🤯
But we should keep an eye on the metrics that drive consumer spending since its accounts for the bulk of GDP. For more, read: Stay mindful of the economic warning signs ⚠️
Should the economy go into recession some time soon, it’s worth remembering that it would be starting from a position of unusual strength. For more, read: Why consumers and businesses will prevent any slowdown from becoming economic calamity 💰 and The glass-half-full view of what could be the next recession 🥃
All that said, recessions, bear markets, and market volatility are just a part of life and investing. For more, read: How the stock market performed around recessions 📉📈, 2 ways of thinking about this chart of stocks and recessions 📈, and The most important pattern in history's bear markets 📉📈📈