U.S. Economics – Labor Market

Intro

The June employment data provided additional insight into four critical labor market dynamics that will likely have broader implications for economic activity. On the data front, private sector hiring continued to slow, the unemployment rate ticked down, and wage growth showed signs of incremental cooling against the backdrop of weaker population growth estimates through year end. This round of data suggests that changes in immigration policy have likely started to impact labor market measures, and a continuation of these trends could weigh on consumer spending data. However, none of this data as it stands today reflects imminent recession or an environment that would lead the Federal Open Market Committee (“FOMC”) to cut rates sooner than the market currently expects.

Labor Market

The Signals:

• • Private Nonfarm Payrolls (Chart 1)
    • Private nonfarm payrolls increased by 74,000 jobs in June, down from 137,000 in May.
      • The government added 73,000 jobs in June, up from 7,000 in May, helping to push total nonfarm payrolls up to 147,000 from 144,000.
  • Unemployment Rate (Chart 2)
    • The unemployment rate declined to 4.1% in June, marking its fourteenth consecutive month sitting between 4.0% and 4.2%.
  • Average Hourly Earnings (Chart 3)
    • Average hourly earnings decelerated to 3.7% from 3.8%, its slowest pace since July 2024.
  • Population Estimates (Chart 4)
    • The Census Bureau’s December release of month-to-month population growth estimates declined meaningfully in August 2024 and are projected to stay muted through December 2025 when compared to levels seen from August 2022 through July 2024.
      • If changes in immigration policy bring these estimates to fruition or exacerbate them, we are likely to see lower breakeven levels of employment, meaning the economy would not have to add as many jobs as it added during the period of higher population growth to stay near the current range of unemployment rate levels.
      • This could have several implications for the trajectory of economic data, including softer hiring trends, a less informative unemployment rate, and a decrease in the number of people earning wages to be spent in the U.S.

The Takeaway:

• The June employment data provided evidence of continued labor market deceleration without sending immediate recessionary signals or providing justification for the FOMC to cut its policy rate sooner than the market currently expects.
• Slower private sector hiring and wage growth moderation alongside an immigration policy-induced decline in population growth support the view that consumer spending could face headwinds if aggregate income growth slows.

Visuals:

(Chart 1)

Source: Macrobond

(Chart 2)

Source: Macrobond

(Chart 3)

Source: Macrobond

(Chart 4)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.