The U.S. economy gained 850,000 jobs in June and the unemployment rate rose to 5.9 percent, from 5.8 percent, a sign that the recovery of the world’s largest economy is building momentum after misses in April and May.
Economists had expected gains of roughly 700,000 jobs and a drop of 0.1 to 0.2 percent in the unemployment rate as Americans have increased activities like air travel, staying at hotels, eating in restaurants and visiting movie theaters.
The positive employment report, released Friday by the Bureau of Labor Statistics, was cheered by economists.
“June’s better-than-expected payroll gains provide some needed reassurance that the healing of the job market remains a work in progress,” said Mark Hamrick, senior economic analyst at Bankrate. “The June showing is solidly above this year’s monthly average pace of more than 500,000 jobs added or recovered.”
Economists might have been too optimistic initially, said Julia Pollak, a labor economist at the jobs site ZipRecruiter, adding that it’s hard to overstate the amount of disruption Covid-19 inflicted on the economy, and the extent to which it upended the career trajectories for millions of workers. All of this adds up to a critical function of the economy that isn’t yet working normally.
“There are all kinds of bottlenecks and frictions in the process of restaffing entire industries,” Pollak said. For instance, she added, a company that laid off all of its administrative personnel would have to recreate its human resources department before rehiring on a large scale.
Economists tend to dislike attaching too much weight to a single month’s report, since it provides a backward-looking snapshot that, even with seasonal adjustments, can remain volatile.
“I think it’s likely going to be pretty noisy here over the next few months as we go through the dog days of summer,” said Cliff Hodge, chief investment officer at Cornerstone Wealth.
The trajectory of the labor market recovery over the next few months will give policymakers — and investors — a better sense of what the future holds. “I think we’re going to be looking quite carefully at what the participation rate is doing,” said James McCann, deputy chief economist at Aberdeen Standard Investments. “What the data could do is cement investors’ thinking about when the Fed might announce a tapering of asset purchases,” he said.
Policymakers have mostly agreed that current pockets of inflation are transitory. But if job gains are robust and both unemployment and underemployment undergo sustained decreases, worry about rising wages creating inflationary pressure could persuade Federal Reserve Chairman Jerome Powell and the other members of the central bank to revisit its massive bond-buying program sooner rather than later.
“It could nudge the Fed to act more quickly than market participants have baked in at the moment,” Hodge said.
Weekly jobless claims data released Thursday showed initial applications for unemployment fell to a new pandemic-era low of 364,000, while payroll processor ADP reported on Wednesday private-sector job growth of 692,000 for June. More than 330,000, or nearly half, of those new jobs came from the leisure and hospitality sector. Overall, gains were broad-based, appearing in every sector except information services, which was down slightly.
Small businesses added 215,000 of those jobs, even though the economic activity taking place there — particularly at restaurants and bars, stores and hotels — has been constrained as business owners struggle to compete for workers with big-box retailers and chain restaurants for hourly workers.
“We are fortunate in the U.S. to have ubiquitous access to vaccines, which has led to a massive shift back to locally owned businesses in these sectors,” said Eric Groves, co-founder and CEO of the small-business networking platform Alignable. “But with the surge comes a massive imbalance of supply and demand within the hourly labor markets,” he said.
In ordinary economic cycles, sustained wage growth can draw people off the sidelines and back into jobs. In recent months, a confluence of factors has created a bottleneck that has interrupted labor flow and led to increased wages, particularly at the lower end of the pay scale.
“There have been some forces holding back stronger progress, and we expect that to ease,” McCann said. “I think it’s a labor market set to accelerate over the next few months.”
A lack of child care, a skills mismatch and extended unemployment benefits have been frequently cited as potential deterrents keeping would-be workers from jobs, although opponents of rolling the program back before it expires in September say enhanced benefits give people a financial cushion that let working parents care for their kids and give displaced workers the chance to seek out new skills and credentials.
Even as vaccination levels rise, the ongoing fear of contracting Covid-19 lingers for many, Hodge said.
“With the delta variant, you’re seeing a bit of a resurgence in virus jitters,” he said. “People may still be uneasy about getting back out there and getting to work,” particularly in high-contact service jobs, he added.
“It’s trending in the right direction, but we’re going to see fits and starts, especially as the benefits roll off,” Hodge said. “It’s going to be lumpy, but we think over the coming months, labor will continue to trend in the right direction.”