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First Cut: June payroll data rebounds decisively, unemployment rate reflects increasing labor force

From the view of labor market performance, there is a lot to like in the June Employment Situation numbers. From the view of those anxious for the Fed to cut rates, the data will disappoint. Strong payroll growth and low unemployment, and rising wages and little slack means the employment side of the dual mandate is being met.

Nonfarm payrolls rose a decisive 224,000 in June. Even with the small net revision down 11,000 to the numbers in May and April, this number of new jobs added passed even the highest market expectations. This settles whether or not the modest up 72,000 (previously up 75,000) was just an outlier in an otherwise solid labor market. It was.

Some ups and downs are to be expected in the current environment. However, the average monthly increase for the second quarter was 171,000, essentially the same as the 174,000 as the first quarter. If economic activity has slowed, businesses’ needs for workers are still well above to absorb new entrants to the labor market and bring in a few who are still on the margins.

Goods producers added 37,000 jobs, of which 21,000 were in construction as residential building has gotten a boost from lower mortgage rates. Job gains for manufacturing was up 17,000, reflecting more surety on the part of the factory sector to capture available skilled workers.

Service providers added 154,00 jobs overall. While retail (-6,000) continues to downsize its brick-and-mortar locations and layoff workers, other categories are solid. Transportation added 24,000 workers as the shift to on-line shopping continues. Professional and business services accounted for nearly a third of the sector (51,000) and healthcare and social assistance accounted for about the same (50,500).

Government added 33,000 jobs, of which the bulk were in local government excluding education (26,400).

Average hourly earnings were up a mild 0.2% in June from May, but the underlying trend of up 3.1% year-over-year suggests that in spite of somewhat slower economic conditions and hiring, wages and salaries are still rising at a good clip.

The unemployment rate nudged up one-tenth to 3.7% (3.666% unrounded in June versus 3.620% in May). The rise was due to an increase in the size of the labor force which rose 335,000 with increases of 247,000 in those employed and 87,000 of the unemployed.

The U6 unemployment rate was rose one-tenth to 7.2%, but remains very much on trend with levels not seen since 2000.

The number of workers part-time for economic reasons was essentially unchanged (down 8,000 to 4.347 million). Job losers were higher (up 72,000 to 2.736 million) while job leavers were active (up 85,000 to 888,000). The number of new entrants into the labor force declined (down 58,000 to 541,000).

The participation rate edged up to 62.9 in June after 62.8 in April and May. However, it is also on trend and showing some slight improvement.

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