June Jobs Report

The labor market rebounded in June, as the report detailed strong gains in jobs created with the second quarter coming to a close. The total change in nonfarm payrolls increased by 222,000 jobs, well above the 178,000 figure economists expected for the month.  Data was revised higher for April and May, as 47,000 were added bringing the three-month average to 194,000 jobs created during the second quarter.  This figure was above the 166,000 average for the first quarter and is above the average of 187,000 jobs created for all of 2016. However, the Unemployment Rate increased to 4.4%, and the broader measure of unemployment which measures both full-time and part-time workers, the U6, increased to 8.6%. More workers entered the workforce during the month, which caused both measures of unemployment to increase.  Still, it is encouraging to see more workers coming back as the number of people who went from out of the labor force to employed rose 4.7 million, the highest amount since 1990.

Despite the strong job creation for the month, the 0.2% growth in wages in June was below economists’ expectations, while the annual pace held steady at 2.5% year-over-year.  Wage growth peaked at a 2.8% year-over-year pace back in February and have yet to hit 3% growth last seen during the Great Recession.  Given the broad-based payroll gains, the weak growth in wages may start to turn later in the year as the labor market tightens.  Consequently, inflation expectations have ticked up in recent weeks, with the yield on the 10-year Treasury bond going from a low of 2.12% in mid-June to 2.39% as of today.  The strength in labor market along with increasing inflation expectations suggest that the Federal Reserve may raise rates at least one more time by the end of the year.  Therefore, we continue to expect modest economic growth with a low probability of recession through the end of the year.