July 02, 2021 | 09:11
U.S. Nonfarm Payrolls: Higher Education
A big rebound in education, restaurant and hotel jobs lifted nonfarm payrolls 850,000 in June, topping market expectations by around 150,000. The two-month prior revisions tallied +15,000, though payrolls remain 6.8 million (4.4%) short of pre-pandemic levels. State and local governments added back 130,000 education jobs and the private sector 39,000, though the two sectors still have 582,000 and 255,000 to go to return to pre-virus levels...this will be a wellspring of strength in future payroll releases. The private sector overall added 662,000 jobs in June, accelerating from the prior month's 516,000 print. Leisure and hospitality accounted for over half of the gain (343,000; still 2.2 million to go), and retail tacked on 67,000.
However, the household survey painted a darker picture of the labour market, shedding 18,000 positions. That, coupled with a flat participation rate (still), lifted the unemployment rate a notch to 5.9%. The "all in" U6 measure fell to 9.8% though, as the number of involuntary part-time employees plunged as businesses extend work hours given the difficulty of filling positions.
Average hourly earnings rose 0.3%, simmering down from the prior month's (downwardly-revised) 0.4% pace, though still sending the yearly rate up to 3.6% from 1.9%. There are better measures of wage trends, which so far show a mixed to firmer trend.
Aggregate work hours rose a modest 0.2% for a third straight month, lifting the Q2 average 4.5% annualized from Q1. A Herculean gain in productivity will be needed to see a double-digit gain in real GDP growth last quarter.
Bottom Line: Despite the snappy headline print, the June jobs report actually casts a dimmer light on the economic recovery. Most of the new jobs now being created are in sectors that were slammed by the pandemic, while companies in other industries are struggling to find available workers...this doesn't bode well for strong organic growth. Meantime, slower work hours highlight a downside risk to our call for 11% annualized GDP growth in Q2, and the lift-off for Q3 (where 8% growth is penciled in) is also soft. While consumer and business spending are likely to remain strong for a while, the constrained supply side looms as a key speed-bump for the recovery and the still 9.5 million unemployed.