Wage weakness amid solid hiring adds to U.S. economic puzzle

UNITED STATES HIRING ROSE in June, but wage growth did not perform to expectations. / BLOOMBERG FILE PHOTO/LUKE SHARRETT
UNITED STATES HIRING ROSE in June, but wage growth did not perform to expectations. / BLOOMBERG FILE PHOTO/LUKE SHARRETT

NEW YORK – United States hiring picked up in June while wage gains disappointed yet again, a mix that may continue to be a puzzle for the economy and policy makers, Labor Department figures showed Friday.

Highlights of Employment (June)

  • Payrolls rose 222,000 (estimated to be 178,000); April-May revisions added 47,000 jobs.
  • Unemployment rate, derived from a separate survey of households, rose to 4.4 percent (estimated to be 4.3 percent) from 16-year low of 4.3 percent.
  • Average hourly earnings rose by 0.2 percent from May (estimated to rise 0.3 percent) and increased 2.5 percent year over year, slightly lower than an estimated 2.6 percent.

Key Takeaways

While payroll gains were broad-based and boosted by the biggest jump in government jobs in almost a year, wages were below forecasts, even with the jobless rate close to the lowest since 2001.

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Sustained hiring in June is evidence of the kind of labor-market resiliency that could eventually lead to a stronger acceleration in wages. At the same time, the month’s data could also reflect a new graduating class and the summer’s seasonal workers joining the labor force – some likely welcomed by employers who are struggling to find workers.

The data suggest the job market is attracting people off the sidelines, as the size of the labor force and number of unemployed people increased, indicating more people are actively looking for work.

While wage growth is running below the peak of previous expansions, the figures may be depressed by weak productivity and the retirement of high-earning Baby Boomers, according to economist Stephen Stanley of Amherst Pierpont Securities LLC.

Nevertheless, the report marks a relatively strong finish for the labor market in the second quarter that should support continued gains in consumer spending in the coming months. Federal Reserve policy makers raised interest rates last month and reiterated plans to start reducing their balance sheet and increase borrowing costs once more this year.

Economist Views

“Inflation has been very, very low and usually businesses raise their workers’ pay by at least the rate of inflation,” Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Penn., said before the report. Stronger wage growth should come later this year or at the start of next year, as businesses “continue to struggle to find qualified workers, and one solution to that is to raise starting salaries or workers’ pay.”

“Productivity numbers are soft – that limits the ability of firms to raise wages,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla., said before the report.

Other Details

  • Participation rate, or share of working-age people in the labor force, increased to 62.8 percent from 62.7 percent, still near the lowest level in more than three decades.
  • The U-6 or underemployment rate rose to 8.6 percent from 8.4 percent, the first increase since January; figure includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking.
  • The measure known as people working part-time for economic reasons rose by 107,000 to 5.33 million.
  • Private employment gained by 187,000 (median estimate was 170,000) after a 159,000 increase; government payrolls rose by 35,000, the most in almost a year, driven by localities.
  • Factory payrolls rose by 1,000; retail hiring increased by 8,100; and leisure and hospitality employment was up 11,000.
  • Average work week for all workers rose to 34.5 hours from 34.4 hours (median estimate was 34.4 hours).
  • Wages showed declines in nondurable-goods manufacturing, professional and business services; small gains in retail, transportation and warehousing; overall wages rising at 2 percent three-month annualized pace.

Patricia Laya is a reporter for Bloomberg News.

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