More job report fireworks
Bottom Line The Labor Department reported some pre-Independence Day pyrotechnics this morning. For the second consecutive month, U.S. employment posted a significantly stronger-than-expected rebound, which shows the labor market is recovering rapidly from the depths of the coronavirus-driven recession.
The stunning addition of 4.8 million jobs in June is well above consensus expectations for a gain of 3.2 million jobs and our slightly more conservative forecast of 2.9 million here at Federated Hermes. To put this in historical perspective, the 4.8 million jobs added in June amount to 2.1 million more than the prior record of 2.7 million set just last month, which itself is more than quadruple the pre-crisis record of 1.1 million added in September 1983. Moreover, May was revised higher by 190,000 jobs. That compares with the loss of 20.8 million at the trough of this painful cycle in April.
Consequently, the unemployment rate (U-3) plunged from 13.3% in May to 11.1% last month. Since peaking in April at 14.7% (the single worst month since record-keeping began in 1939), the U-3 has now fallen 3.6 percentage points over the last two months. That represents the largest 2-month decline in history, nearly tripling the previous record of a 1.3% decline between October and December of 1949.
The labor impairment rate (U-6), which is also known as the underemployment rate and is a better and broader barometer of the labor market because it includes both part-time and discouraged workers, plummeted to 18% in June from 21.2% in May, down from a record high of 22.8% in April. The labor force participation rate improved to 61.5% in June from 60.8% in May and 60.2% in April as more people have reentered the work force.
The household survey continued its powerful rebound, adding 4.94 million jobs in June, up from a gain of 3.84 million in May. That compares with a record loss of 22.4 million jobs in April. Average hourly earnings fell 1.2% on a month-over-month basis in June, but that’s a positive sign, signaling a mix shift due to the re-entry of lower-income workers back into the labor market. So on a year-over-year basis, hourly earnings rose 5% in June, down from 6.6% in May and 8% in April.
Policy implications In our view, the strength of the labor market rebound over the past two months does nothing to dissuade the Federal Reserve from maintaining its current extraordinarily accommodative monetary policy path. But as Congress and the Trump administration begin to negotiate the details on a proposed Phase 5 fiscal policy stimulus package in coming weeks, the robust jobs recovery to date could very well shift their focus to incentivize the remaining unemployed to return to work, rather than encourage them to remain home. However, the recent spike in infections in several southern states may complicate those discussions.
Internals robust Private payrolls added nearly 4.8 million jobs in June, compared with a gain of 3.2 million jobs in May and a staggering loss of 19.8 million jobs in April. The federal government added 33,000 jobs in June, versus losses of 533,000 in May and 952,000 in April. Local governments added 57,000 jobs in June, while states subtracted 25,000 employees.
Manufacturing added 356,000 jobs in June, up from 250,000 jobs in May, after losing more than 1.3 million jobs in April. Construction added 158,000 workers in June, down from a gain of 453,000 jobs in May, compared with a loss of more than 1 million workers in April. As stores re-opened, retail brought back 740,000 jobs in June, double May’s gain of 372,000, after losing 2.3 million jobs in April. The education and health category added 568,000 workers in June, up from 399,000 jobs added in May, well above the loss of 2.6 million jobs in April. Finally, leisure and hospitality added 2.1 million workers in June, up from 1.4 million workers in May, after losing more than 7.6 million jobs in April.
Strong ADP rebound On the surface, the ADP private payroll survey posted a disappointing gain in June of only 2.369 million jobs, compared with an expected increase of 2.9 million. But May was revised sharply higher, from a preliminary loss of 2.76 million to a surprising gain of 3.065 million, for a positive net revision of nearly 5.83 million jobs. April had lost 19.4 million jobs. So instead of an expected increase of only 140,000 private jobs in May and June combined, the revisions generated a powerful 2-month gain of more than 5.4 million.
Initial claims plateau Initial weekly jobless claims (an important leading indicator for the labor market) have plunged 79% over the past 13 weeks, from a peak of 6.867 million on March 28 to 1.427 million on June 27. But over the past four weeks, claims have leveled off at about 1.5 million. Continuing claims have fallen 23% over the past six weeks, from their peak at 24.9 million on May 9 to 19.3 million on June 20. But they have plateaued at about 19.3 million over the past two weeks. Perhaps the recent spike in infections in several southern states is slowing the pace of improvement in the labor market.
Happy Independence Day!