New report finds U.S. job growth at ‘Goldilocks’ mark, but will it keep Fed from going bearish on rates?

A “We’re Hiring!” sign is pictured at CosmoProf in Salt Lake City on Friday, Jan. 6, 2023.
A “We’re Hiring!” sign is pictured at CosmoProf in Salt Lake City on Friday, Jan. 6, 2023. | Kristin Murphy, Deseret News

A smoking hot U.S. labor market showed some signs of cooling in June but the still robust wage growth, a downtick in unemployment and ongoing inflation will likely help push the Federal Reserve toward another interest rate hike later this month after taking a pause in its last meeting.

According to a U.S. Labor Department report released Friday, non-farm employment rolls grew by 209,000 positions in June and average unemployment across the country came in at 3.6%, down a tenth of a percent from May and a rate hovering near the lowest in decades.

The June job numbers came in lower than the 240,000 predicted by Dow Jones, and are well down from the 306,000 new positions created in May. And, the monthly figure is the lowest since late 2020. But, from a historical perspective, the growth rate is in the zone of sustainability and one that is moving closer to the goals of the Fed officials who, until their meeting last month, had enacted 10 straight interest rate hikes aiming to cool down the overall economy.

Most of last month’s job growth came in three broad categories that are largely insulated from economic trends: State and local governments, health care providers and private education. Together, they added 133,000 jobs. Because those sectors don’t depend on robust consumer spending as much as the rest of the economy does, per The Associated Press, their hiring gains don’t really reflect rising consumer demand — the main fuel for inflation.

“This is kind of a Goldilocks report,” Julia Coronado, president of MacroPolicy Perspectives, an economic research firm, told AP. “It’s a resilient labor market — not too hot, not too cool.”

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The report also found average wages inched up last month and wage growth over the last year now slightly exceeds core inflation over the same period.

In June, average hourly earnings for all employees on private non-farm payrolls rose by 12 cents, or 0.4%, to $33.58. Over the past 12 months, average hourly earnings have increased by 4.4%, according to the Labor Department.

Utah is among states with the lowest unemployment in the country, with the latest report from the Department of Workforce Services pegging the rate at 2.3% in May. Nebraska, New Hampshire and South Dakota all reported 1.9% unemployment in May, the lowest rates in the country, according to Labor Department data.

After enacting a series of 10 straight rate hikes going back to March 2022, the Federal Reserve left its benchmark lending rate of 5%-5.25% unchanged following its meeting last month. But economists believe the move may have been more “skip” than “pause” and predict the monetary body will enact at least two more hikes before the end of the year as the annual inflation rate continues to run well north of the Fed’s 2% target.

While June hiring volumes were down significantly, the Fed is likely to view the robust wage growth, alongside still high inflation, as further evidence that work to chill down the economy is not yet complete.

“The Fed sees strong wage growth as a sign that the labor market is still very tight and could contribute to inflationary pressures,” Bill Adams, chief economist at Comerica Bank, told The Wall Street Journal.

The latest jobs and wage data adds to evidence that economic activity hasn’t slowed as much as Fed officials expected, per the Journal, and leaves them likely to lift interest rates to a 22-year high at their July 25-26 meeting.