Is this a hiccup, or a turn back to the job-market lethargy of 2025? One thing is certain – the timing could not be worse for the White House and Republicans facing a tough midterm election cycle.
The news from the BLS jobs report for June isn't necessarily bad, but it's not good either. The economy added only 57,000 jobs last month, although the unemployment rate declined slightly to 4.2%. The good news from previous months got tempered a bit as well in the revisions:
Both total nonfarm payroll employment (+57,000) and the unemployment rate (4.2 percent) changed little in June, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services, social assistance, and health care. Leisure and hospitality lost jobs. ...
The labor force participation rate decreased by 0.3 percentage point to 61.5 percent in June, and the employment-population ratio edged down by 0.2 percentage point to 59.0 percent. Both measures changed little over the year after accounting for annual population control adjustments. (See table A-1.)
The number of people employed part time for economic reasons changed little at 4.7 million in June. These individuals would have preferred full-time employment but were working part time because their hours had been reduced or they were unable to find full-time jobs. (See table A-8.)
In June, the number of people not in the labor force who currently want a job changed little at 6.0 million. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job. (See table A-1.)
The decline in workforce participation will likely concern analysts. The drop of 720K in the workforce should have pushed those numbers up rather than down, since the workforce number is the denominator in that formula. However, the sudden outflow of 720K from the workforce in a single month looks suspicious. The Household Data survey has been notoriously inconsistent for years, and this big swing between two successive phone polls should raise questions about methodology ... again.
The jobs numbers come from the Establishment Survey, which polls employers rather than households and generally displays more data stability over the BLS jobs reports. That's where the topline number of 57,000 added jobs originates, and it's also the source of BLS revisions in later reports. That definitely produced some bad news about two relatively robust previous reports:
The change in total nonfarm payroll employment for April was revised down by 31,000, from +179,000 to +148,000, and the change for May was revised down by 43,000, from +172,000 to +129,000. With these revisions, employment in April and May combined is 74,000 lower than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.)
The news is far from all bad, though. First off, job creation remained positive, even it sharply declined and may not be keeping up to maintenance level. More interestingly, wages continued to grow at a good pace, although they didn't keep up with inflation in June:
In June, average hourly earnings for all employees on private nonfarm payrolls rose by 13 cents, or 0.3 percent, to $37.64. Over the year, average hourly earnings have increased by 3.5 percent. In June, average hourly earnings of private-sector production and nonsupervisory employees rose by 7 cents, or 0.2 percent, to $32.38. (See tables B-3 and B-8.)
The average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours in June. In manufacturing, the average workweek edged down to 40.3 hours, and overtime edged up to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls declined by 0.1 hour to 33.7 hours. (See tables B-2 and B-7.)
Wages are still going up on a monthly basis and are well into the mid-three-percent annualized growth rate in every jobs report. Hours expanded as well. The economy seems to be generating work, and employees are receiving pay increases at a level where it seems clear that the labor market is still competitive for workers. Why, then, is job creation so low?
The Wall Street Journal thinks that the net population decrease from immigration reform is playing a large part in the trend:
Still, the job market appears to be on firmer footing than it was in the second part of last year. The economy added, on average, 92,000 jobs a month over the first half of this year. In the final six months of last year it shed 8,000 jobs each month, on average.
However, the unemployment rate ticked down unexpectedly in June, as more people left the labor force. The unemployment rate was 4.2%. Economists had expected 4.3%.
The share of the working-age population that is either working or looking for work—known as the labor-force participation rate—edged down to 61.5% in June, the lowest since March 2021.
The labor force is smaller than a year ago, likely reflecting more hard-line immigration policies and baby-boomer retirements. The size of the labor force declined by 720,000 from May to June.
I have suspected the same since last summer's sudden softening of the labor market. The tougher enforcement of immigration law has incentivized illegal aliens to leave the job markets, and legal labor has been filling these existing jobs. That would explain lower overall numbers for job expansion while wages continue to move upward, since the departure of illegals would make legal workers more valuable. That trend, plus the departure of the last of the Boomers to retirement, would explain the decreasing workforce numbers, but it seems very unlikely that three-quarters of a million illegals and retirees left the workforce in June alone. Look to the next Household survey for July for corrections to this data sequence.
CNBC's Rick Santelli does a good job in breaking down the numbers. This does appear to be a miss but not a disaster. That is hard to sell in a midterm cycle, though, and the White House had better hope that they get a boost coming out of the next two jobs reports.
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