The June jobs numbers provided mixed news on the labor market, but more than anything, they suggest that the U.S. economy remains much weaker than desired, particularly for manufacturing. On the positive side, manufacturers added 14,000 workers in June, which was encouraging. Yet, the sector has lost 24,000 employees through the first six months of 2016 – a sign that business leaders remain cautious in light of global headwinds and soft demand and production growth.
Likewise, the strong nonfarm payroll number for June, up by 287,000, would be more promising if not for the downward revision to May, up by just 11,000 instead of the originally reported figure of 38,000. Indeed, it is clear that nonfarm payroll growth has eased year-to-date. The U.S. economy averaged 147,333 additional nonfarm payroll workers in the second quarter, slowing from the 282,000 and 195,667 average paces seen in the fourth quarter of 2015 and the first quarter of this year. Along those lines, the unemployment rate rose from 4.7 percent in May to 4.9 percent in June, largely on an uptick in the participation rate from 62.6 percent to 62.7 percent.
The so-called real unemployment rate – which includes discouraged workers, the underemployed and those working part-time for economic reasons – edged down from 9.7 percent to 9.6 percent. Despite the decline, it is clear that the labor market remains weaker than the headline number suggests, as this figure continues to be quite elevated.
The big question, of course, is how this data impacts decision-making at the Federal Reserve. The Federal Open Market Committee (FOMC) is likely to continue hitting the pause button at its July meeting as there remain enough uncertainties in the global marketplace and job growth continues to be weaker than desired in recent months. Yet, if upcoming data show forward movement on jobs and if other economic indicators continue reporting progress, there will be a renewed focus on the September or December FOMC meetings for a possible short-term rate hike. Either way, it is looking more and more like a one-and-done year for increases in the federal funds in 2016 – clearly a shift from the plans for four rate hikes expected at the end of 2015.
Looking more closely at the June manufacturing employment data, durable and nondurable goods firms added 3,000 and 11,000 workers on net, respectively, for the month. The largest gains were seen in the following sectors: food manufacturing (up 13,000), furniture and related products (up 2,800), electrical equipment and appliances (up 2,700), miscellaneous nondurable goods (up 2,200), wood products (up 2,100), miscellaneous durable goods (up 1,800) and machinery (up 900). In contrast, employment was lower for plastics and rubber products (down 2,200), computer and electronic products (down 2,100), nonmetallic mineral products (down 1,800), transportation equipment (down 1,500) and primary metals (down 1,300), among others.
While hiring among manufacturers ticked higher in June, average weekly earnings in the sector edged lower, down from $1,059.01 in May to $1,056.57 in June. On a year-over-year basis, average weekly earnings have increased from $1,019.06 in June 2015, up 3.7 percent for the 12-month period. In comparison, total private sector average weekly earnings grew 2.3 percent year-over-year. Average weekly hours in manufacturing were unchanged in June at 40.7 hours, with 3.3 hours of overtime on average also not budging for the month.
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