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The U.S. added 209,000 jobs in June, less than expected and much lower than the ADP Employment report of 497,000 jobs. This is the lightest monthly gain since December 2020 but still in the range for solid job growth. The private sector added 149,000 jobs with the government accounting for the remaining 60,000 jobs. As has been the case for months, the bulk of the jobs continue to be in the service sectors, led in June by health care and construction. Jobs declined in retail trade, transportation and warehousing, a sign that people continue to spend less on goods.
The unemployment rate fell a tenth of a percent to 3.6%. The mismatch between labor supply and demand is coming into balance in part due to more participation. Another sign of cooler labor demand is the number of people working part-time for economic reasons which surged by the most since April 2020. While the overall participation rate held steady at 62.6%, the rate climbed to a 21-year high for those ages 25-54. Average hourly earnings rose 0.4% in June and 4.4% from a year ago, both in line with similar gains the past few months.
The take-away from two days of job data is the labor market is slowing down but at a moderate and healthy pace. The Federal Reserve wanted to remove the tightness in the labor market, which it is achieving without negatively impacting wages.
Key Indicators this Week
ISM Surveys – The Institute for Supply Management’s sister surveys expose the change that has been occurring in the economy. Once a goods driven economy, the pandemic has propelled services as the key driver of economic growth. The ISM manufacturing survey fell to 46 in June, lower than expected and the lowest level since May 2020. June was also the third month in a row of declining levels. Measures for production, employment and prices all fell. The index of new orders contracted for a 10th straight month and order backlogs shrank, which may help explain a pullback in manufacturing employment. Eleven industries reported shrinking activity in June, led by plastics and rubber products, wood products, and textile mills.
On the flip side, the ISM service sector gauge rose to 53.9, the highest level since February. More importantly, the employment gauge rose above 50, marking the move from contraction to expansion. The jump to 53.1 was the highest level since February. New orders, the proxy for future activity, rebounded from a dip in May. Comments from industry leaders pointed to stabilizing inflation rates, improving business demand and steadier supply chain lead times for helping overall business improvement.
Important Data Change
June marked the end of LIBOR, the London Interbank Offered Rate, which served as the key benchmark for setting interest rates charged on adjustable-rate loans, mortgages and corporate debt around the world. Using LIBOR to price new loans effectively ended in January 2022 and was replaced by SOFR, the Secured Overnight Financing Rate. June 30 was the official last time the LIBOR rate was set after more than 50 years. LIBOR was plagued with price manipulation scandal over a decade ago. The weekly Numbers report reflects this change.
Sarina Freedland – Senior Investment Officer
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