372,000 new jobs per month and an unemployment rate close to a 50-year low are proof enough that the US labor market is facing difficulties.
Last month, the unemployment rate hit a record low after wages for non-management workers continued to rise. The number of vacancies also remains close to record highs, and a near-record number of small businesses raised compensation in June.
Combining this with what is expected to be another surge in inflation, the chances of more aggressive rate hikes by the Fed increases even more. Many expect the central bank to raise interest rates by another 75 basis points this month to curb demand in the economy.
"After this report, you can pretty much count on 75 basis points in July," said Jim Caron, chief fixed income strategist with Morgan Stanley Investment Management. "The job market is strong and it's not giving up any growth."
The fall of the U-6 unemployment rate to its lowest level in June indicated that layoffs remain rare as employers continue to struggle in terms of hiring and keeping skilled workers, especially since demand for labor outstrips supply.
This low unemployment rate also means that the number of workers looking for work remains limited, which is likely to contribute to an increase in the number of vacancies. The momentum could ease later this year as the Fed continues to raise interest rates in an effort to curb consumer appetite and, as a result, demand for labor.
But even with a slight increase in wages, many are still not interested in work. The number of people not in the labor force rose in June by the most since September 2020. The more widely accepted measure of participation also dropped unexpectedly, led by workers aged 25 to 54. This results in millions of vacancies remaining unfilled. As such, data released earlier this week showed that job openings in the US fell slightly in May, but remained at a near-record of 11.3 million. That means 1.9 jobs for every unemployed person this month.
The ISM's employment indices in both manufacturing and services sectors also fell to their lowest levels in June.
While a drop below 50 is usually associated with a weakening job market, survey respondents said they simply can't find the workers they need. This confirms the results of the NFIB report, which showed that 23% of small business owners said that the quality of the workforce is their top business concern, second only to inflation.
