Private wage growth was strong in June

U.S. nonfarm payrolls added 372,000 jobs in June. Although that result will be considered extremely strong by long-term historical comparisons, it is at the lower end of recent gains (see first chart). The average monthly profit from 2010 to 2019 was 183,000 whereas the average monthly profit in the last twelve months was 524,000.

Private payroll gained 381,000 in June (see first chart). The average monthly profit from 2010 to 2019 was 181,000 whereas the average monthly profit in the last twelve months is 508,000. Total non-firm wages are 0.3 percent below their February 2020 level where individual salaries have finally surpassed the February 2020 top (see Chart 2).

Profits have generally been broad-based in recent months Of the 381,000 gains in private pay, personal services added 333,000 as against the 12-month average of 436,000 while the manufacturing industries added 48,000 vs. the 12-month average of 71,700.

Among the private service-producing industries, education and health services increased by 96,000 (58,300 twelve-month average), business and professional services added 74,000 (vs. 99,100), leisure and hospitality added 67,000 (vs. 134,300), transportation and 350 added. Jobs (against an average of 41,000), information services 25,000 (vs. 15,700), wholesale trade 16,400 (vs. 16,600) and retail employment increased 15,400 (32,900; see third chart).

Of the 48,000 gains in the commodity-manufacturing industry, sustainable-goods production added 18,000, construction added 13,000, sustainable-product production increased 11,000, and the mining and logging industry grew 6,000-thirds (four).

Although the actual monthly private salary gains are influenced by a few service industries, the monthly percentage changes paint a slightly different picture. The mining and logging industry, information services, and transportation and warehousing are recently posting strong monthly percentage gains (see Chart 4).

Average hourly earnings rose 0.3 percent in June, leaving the 12-month profit at 5.1 percent. Average hourly earnings for manufacturing and non-supervisory workers increased 0.5 percent month-over-month and 6.4 percent year-on-year. The average work week for all employees in June was unchanged at 34.5 hours whereas the average work week for manufacturing and non-supervisory was held at 34.0 hours.

Combined with hourly earnings and working hours, the overall weekly wage index for all employees rose 0.6 percent in June and 9.4 percent from a year earlier; The index for production and supervisory workers rose 0.8 percent, up 10.7 percent from a year earlier.

The total number of officially unemployed in June was 5.912 million, down from 38,000. The unemployment rate remained unchanged at 3.6 percent while the lower employment rate, referred to as the U-6 rate, fell 0.4 percentage points to 6.7 percent in June. In February 2020, the unemployment rate was 3.5 percent while the low-unemployment rate was 7.0 percent.

The employment-population ratio, one of the AIER’s fairly coincidental indicators, fell to 59.9 percent for June, down 0.2 percent and still significantly below 61.2 percent in February 2020. The labor force participation rate fell to 0.1 percentage points in June, from 62.2 percent, but still below 63.4 percent in February 2020 (see Fifth Chart). The total workforce came in at 164.0 million, down 353,000 from the previous month and less than half a million at the 164.6 million level in February 2020 (see Fifth Chart).

One of the reasons for the weak participation rate is that the labor market is so tense. Based on the latest Job Openings and Labor Turnover Survey (JOLTS), there are 1,034 employees available for each opening, which is slightly higher than the April record of 0.957 (see Chart 6). The JOLTS report shows that the total number of private-sector job openings and the number of private-sector jobs leaving returned in April and May, suggesting that labor conditions have eased somewhat.

The June job report shows that total nonfarm and private pay-rolls have posted strong, albeit somewhat slow, gains. Slightly slower gains are consistent with the upward trend in weekly initial claims for unemployment insurance, and the number of job openings and departures in May is slightly lower. Less confidence in the labor market can lead to lower consumer spending. The constant rate of inflation is also hurting the attitude of consumers and can also affect the type of spending. Moreover, an intense cycle of tightening Fed policy is increasing the cost of borrowing for consumers and businesses alike. At the same time, the Russian aggression in Ukraine is disrupting the global supply chain. The outlook remains highly uncertain, and warnings have been confirmed.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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