A strong labor market showed no sign of slowing last month as the country added 372,000 jobs in June, according to the latest report from the Bureau of Labor Statistics, beating most analysts’ expectations and increasing the odds that the Federal Reserve will continue to raise rates aggressively through the coming months.
“Despite concerns about an economic slowdown, companies added a net 372,000 jobs to payrolls in June, a very modest slowdown from the 376,000 added on average over the prior two months,” said realtor.com® Chief Economist Danielle Hale in a statement.
With increasing fears of a recession and much more urgent action recently by the Fed, the prospect of slowing employment and wage growth (also up slightly from expectations at 5.1% year-over-year) has seemed more a question of when rather than if.
But the report seems to indicate that the economy is not yet running scared from these shifting macroeconomic factors, with jobs added across a broad swath of industries including hard-hit leisure and hospitality, which added 41,000 jobs. That number is still 1.3 million payrolls short of February 2020.
“This labor market strength comes despite other economic data showing signs of weakening and a higher probability of a recession,” said Mortgage Banker Association AVP of Economic and Industry Forecasting Joel Kan in a statement. “With the Federal Reserve intently focused on bringing down inflation, we expect this will not alter near-term expectations for another 75-basis-point rate hike at the next FOMC meeting.”
On the other hand, the transportation sector jobs also saw strong gains, adding 36,000 jobs to climb back to pre-pandemic levels.
“The economy is now just 524,000 jobs or (0.3%) shy of the pre-pandemic high mark, nationwide,” Hale noted. “At the current pace of hiring, we’ll reach that milestone by August.”
On the housing side, the picture was a little less rosy, with residential construction losing a fractional 4,500 jobs after gaining a little over 6,000 in May. Overall construction employment was up 13,000 this month.
“Disappointingly…construction jobs in building homes and apartments fell in the latest month,” said National Association of REALTORS® (NAR) Chief Economist Lawrence Yun. “That means the housing shortage will linger and apartment rents will rise.”
“Construction jobs did show a slight gain over the month, mostly driven by nonresidential construction jobs,” Kan noted. “The housing market continues to suffer from a low supply of homes for sale, as material and labor costs remain elevated. The strong labor market is still a positive for the housing market, but overall demand has cooled from the recent jump in mortgage rates, high home prices, and rising economic uncertainty.”
Yun added that it will take more than a strong labor market and moderating mortgage rates to fully revitalize the housing economy, as a fundamental lack of available homes continues to weigh on real estate.
“Home sales have been coming down this year back to pre-pandemic levels after the gangbuster performance of the past two years, due to a steep fall in housing affordability. Alleviating the housing shortage, therefore, will help with affordability,” he argued.
Wages, which have grown significantly but completely failed to keep pace with inflation, have left many workers still struggling to make ends meet. Hale points out this decrease in purchasing power directly affects housing.
“Although wage gains are higher than is historically typical, they are not outpacing recent inflation, and also not keeping up with the more than 50% higher cost of buying today’s typical home listing or the more than 15% higher cost of renting today’s typical rental,” she said. “For this reason, households making a move in today’s market, whether choosing to rent or purchase, can expect to pay a larger share of their monthly budget for housing.”
Even as mortgage rates have fallen recently, they remain tremendously inflated from recent lows, with experts and insides still unsure just how quickly the market will snap back from the imbalances of the last year or so.
“Mortgage rates took a breather this past week on the prospect of less aggressive Fed interest rate hikes in the upcoming months,” Yun explained. “Mortgage rates, however, will be higher next week as the job market continues to expand.”
Going into the later summer, all eyes are trained on Fed chair Jerome Powell and the central bank’s approach to tackling inflation, which has held at historic levels and remains a central focus of both policymakers and everyday Americans. The next Fed meeting, at which another 75-basis-point rate hike is widely expected, is scheduled for July 26 and 27.