The US economy powered through June with broad-based hiring on par with recent months, keeping the country clear of recession territory even as inflation eats into wages and interest rates continue to rise.
Employers added 372,000 jobs, the Labor Department reported Friday, and the unemployment rate, at 3.6 percent, was unchanged from May and near a 50-year low.
Washington and Wall Street had keenly awaited the new data after a series of weaker economic indicators. The June job growth exceeded economists’ forecasts by roughly 100,000, offering some reassurance that a sharper downturn isn’t underway — at least not yet.
But the strength of the report, which also showed bigger wage gains than expected, could give the Federal Reserve more leeway for tough medicine to beat back inflation. Now, all eyes will be watching whether the Fed’s strategy of raising interest rates pushes the country into a recession that inflicts harsh pain.
Employment growth over the last three months averaged 375,000, a solid showing though a drop from a monthly pace of 539,000 in the first quarter of this year. Employers have continued to hang on to workers in recent months, with initial unemployment claims rising only slightly from their low point in March.
The private sector has now regained its prepandemic employment level — an achievement trumpeted by the White House on Friday — though the level is still below what would have been expected absent the pandemic. Other than the public sector, no broad industry lost jobs in June, on a seasonally adjusted basis.
“We’ve essentially ground our way back to where we were pre-Covid,” said Christian Lundblad, a professor of finance at the Kenan-Flagler Business School at the University of North Carolina. “So, this doesn’t necessarily look like a dire situation, despite the fact that we’re struggling with inflation and economic declines in some other dimensions.”
Strong demand for workers is also evident in the 11.3 million jobs that employers had open in May, a number that remains close to record highs and leaves nearly two jobs available for every person looking for work. In this equation, any workers laid off as certain sectors come under strain are more likely to find new jobs quickly.
The Labor Department’s broadest measure of labor force underutilization — which includes part-time workers who want more hours and people who have been discouraged from job hunting — sank to its lowest rate since the household survey took its current form in 1994, a sign that employers are maximizing their existing work force as hiring remains difficult.
Employment in service-providing industries led the June gains, in line with a pullback in goods spending as consumers shifted toward experiences that they had to forgo while public health restrictions remained in place. Leisure and hospitality businesses, still catching up to prepandemic employment levels, added 67,000 jobs.
Government employment was an exception to the larger trend, with a decline of 9,000 jobs. It was 664,000 jobs below where it stood in February 2020.
The vibrant job market has been particularly beneficial for historically marginalized groups: The unemployment rate for Black Americans sank to 5.8 percent, still nearly double that for white people but the lowest it has been since November 2019.
The State of Jobs in the United States
Job gains continue to maintain their impressive run, easing worries of an economic slowdown but complicating efforts to fight inflation.
The healthy pace of hiring stands in stark contrast to surveys of consumer and business sentiment, which have sunk to alarming lows in recent months. While widespread perceptions of being in a recession appear to be off base, the swift job growth of the first half of the year most likely won’t continue into the second.
Sky-high prices are weighing on consumer spending. Savings are shrinking. The labor force remains constrained by aging demographics, low levels of immigration and barriers to work — such as the availability of care for children and older family members — that keep many people on the sidelines.
In one concerning signal, the share of people in the prime of their careers — from 25 to 54 years old — who are either working or looking for work dropped in June to 82.3 percent from 82.6 percent, well below the prepandemic high of 83.1 percent.
The report contained signs that Covid-19 is still a lingering worry, with 2.1 million people saying they couldn’t work in June because their employer closed or lost business as a result of the pandemic, compared with 1.8 million the previous month. Also, as inflation remains high, some people may be retreating from the job market simply because it’s too expensive to keep working.
That’s the situation facing Megan Petersen, who supports her family of four in Spokane, Wash., with a full-time job in digital marketing and a side business selling jewelry. Her husband worked for the US Postal Service until last week, when he quit to take care of their 2-year-old after the price of gasoline and the cost of child care exceeded his take-home pay.
“Once the benefits and everything come out of your paycheck, it’s literally less than those two things combined,” Ms. Petersen said. “This doesn’t make mathematical sense.”
Her husband may go back to work, she said, when their younger daughter enters school. But there’s no guarantee an abundance of jobs will await him. The consulting firm Oxford Economics projects that the economy will add an average of only 65,000 jobs per month in 2023.
Business leaders report that, while some supply chain issues have eased, new orders are slowing. Whenever possible, employers are automating tasks rather than hiring.
“Employers are getting less anxious to fill those job postings as they watch the slow economy,” said Bill Adams, the chief economist at Comerica Bank. “I would expect that probably businesses will slow-walk filling open positions before they actually pull job postings.”
Wage growth, while strong, moderated in June, and it was not enough to keep pace with prices, meaning that those with the lowest incomes may have to choose which basic needs to pay for.
Going into the fall, slowdowns are expected first in businesses most sensitive to interest rates, like construction and manufacturing.
Andrew Wernick runs Industrial Plywood, a lumber supplier in Reading, Pa., that raised wages substantially to compete for workers over the past year as demand for door frames and cabinets soared. Now, as rising mortgage rates drive down home sales, he is not sure whether he’ll be able to keep those new hires through the end of the year.
“A lot of our customers are still working off backlogs, and no new work is coming in the front door,” Mr. Wernick said. “We’re not so quick to let people go if they’ve been trained already — they’re so difficult to replace.”
Some industries that hired workers energetically — like those benefiting from a heavy demand for goods in earlier stages of the pandemic — are dealing with a swing back to more typical buying patterns. For workers who responded to higher wages offered by desperate employers, that can be painful.
Exhibit A is the trucking industry, which brought in thousands of drivers as freight rates rose and headlines proclaimed a labor shortage. Kenny Vieth, the president of the transportation data firm ACT Research, said reduced spending on goods meant not enough cargo to keep everyone on the road.
“Guys were just pouring into the market at the exact moment when freight volumes rolled off,” Mr. Vieth said. “Given how quickly the spot market has collapsed, we’re projecting that the driver capacity reset is going to happen more quickly.”
As the last two years have shown, unpredictable headwinds can always emerge — a new coronavirus variant, another global conflict or a natural disaster that throws supply chains back into turmoil.
The variable on most forecasters’ minds, however, is what toll the Fed’s interest-rate policy will take on economic activity.
“I think it’s inevitable that we’ll see a slowdown,” said Cailin Birch, the lead US analyst for the Economist Intelligence Unit. “The question is whether it’s a slowdown that’s manageable, or if it turns into a collapse.”