Jobs report as Baked Alaska: Hot on the outside, cool at its core

Reuters

Jobs report as Baked Alaska: Hot on the outside, cool at its core

Jul 5, 2024 at 3:10 pm GMT

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JOBS REPORT AS BAKED ALASKA: HOT ON THE OUTSIDE, COOL AT ITS CORE

The Labor Department pulled off a nice party trick on Friday, releasing a better than expected topline jobs print as the bow atop a rather soft report.

The U.S. economy added 206,000 jobs in June USNFAR=ECI, a 5.5% drop from May's 218,000, which was revised sharply lower - nearly 20% - from the originally stated 272,000.

Even so, the number landed 16,000 to the north of analysts estimates and notching the ninth consensus beat over the last twelve months.

June's beat came courtesy of a robust 70,000 headcount increase among government employees; the private sector added a mere 136,000 or 15% shy of economist projections.

On a granular level, the services segment provided 86% of all private sector gigs, while retail and manufacturing shed 8,500 and 8,000 jobs, respectively.

"Large downward payroll revisions and negligible job gains outside of government and government-related sectors provide more evidence the economy is downshifting and possibly faster than many investors may realize," writes Joseph Lavorgna, chief economist at SMBC Nikko Securities.

Hourly earnings growth was arguably the highlight of the report, cooling down to 0.3% from 0.4% on a monthly basis, and shedding 20 basis to 3.9% year-on-year.

That's the first glimpse at June inflation and it bodes well for the Fed rate cut prospects. Powell & Co have identified the tight labor market (and the hot wage growth it produced) as an obstacle in inflation's meandering path down to the central bank's 2% goal.

"This report puts the Fed in a comfortable spot and by that I mean If this continues next month, with no increases in hourly wages, then I think we’ll see a rate cut in September and another one in December," said Peter Cardillo, chief market economist at Spartan Capital Securities in a Reuters interview.

Elsewhere, the unemployment rate USUNR=ECI surprised by inching up to 4.1% - analysts believed it would hold pat at an even 4.0%.

While this could be partly explained by the afore-mentioned job cuts in retail and manufacturing, the jobless rate was likely given a bigger boost by the uptick in the labor market participation rate, which increased to 62.6% from 62.5%.

Folks who have left the labor pool are not considered unemployed. When the participation rate rises, often so does the jobless rate.

"The uptick in the unemployment rate was due to an increase in labor force participation, with prime-age participation up to the highest since 2002 (Prime-age in the labor force is ages 25-54, when participation tends to be highest)," says Bill Adams, chief economist for Comerica Bank.

It should be noted, however, that the participation rate has yet to recover from the "great resignation" phenomenon which followed pandemic shutdowns.

The report offered another surprise in the form of average unemployment duration, which dipped to 19.3 weeks, the shortest it's been in a year.

That doesn't quite compute with the Labor Department's weekly jobless claims data, which showed ongoing claims hitting their highest level in three-and-a-half years.

Another oddity in this report can be found in the breakdown of the jobless rate by race and ethnicity.

White unemployment held steady at 3.5% while joblessness among Hispanic workers eased 10 basis points to 4.9%. Black unemployment rose to 6.3% resulting in a widening of the White/Black jobs gap to 2.8 percentage points.

But the obvious outlier is the gigantic surge in Asian joblessness, from 2.9% to 4.4%, putting the metric well above the white unemployment rate, for the first time since COVID.

Racism is a potential culprit.

A study published on June 17 by Northeastern University examines the rise of anti-China rhetoric in this election cycle and its economic impact on Asian Americans, particularly as it applies to the labor market.

(Stephen Culp)

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