A labor market that for months seemingly shrugged off the Federal Reserve’s heavy hand finally appears to be slowing, as the latest report on jobs missed expectations with 209,000 new positions added in June. Economists and investors expected around 240,000.
The unemployment rate remained mostly unchanged and in line with expectations at 3.6%.
“The June employment figures suggest that while the labor market is softening, the economy remains resilient,” said Dr. Lisa Sturtevant, Bright MLS chief economist, in a statement. “While the number of job openings fell in May, the number of new job listings is still higher than pre-pandemic levels.”
The report comes after a more positive outlook on jobs released yesterday sent stock indexes into a tailspin, as investors worried that an unshakably hot labor market would force the Fed to enact more or larger interest rate hikes in the near future. It is unclear how the central bank will interpret this latest data—though continued weakness could also begin stoking recession fears.
Economists including Sturtevant have tied the relatively mild housing correction to the resilience of the labor sector, which has prevented foreclosures and allowed at least some buyers to purchase a home despite high prices and rates.
While Fed Chair Jerome Powell has been pressed on the negative effects his rate hike campaign will have on everyday workers (and housing), a cooling labor market is broadly seen as a sign that the policy is working.
“Today’s employment report does not provide a clear indication as to what the Federal Reserve will do at its next meeting,” said Sturtevant, “but the expectation is still for a rate increase when the Federal Open Market Committee (FOMC) convenes again.”
But the potential for more rate hikes—currently viewed as the most likely scenario—is still not certain. National Association of REALTORS® Chief Economist Dr. Lawrence Yun, who has previously lobbied against further tightening by the Fed, said this most recent job data should convince FOMC members to hold rates steady.
“The weaker job market combined with decelerating wage growth and calming consumer price inflation are clear indications for the Federal Reserve to stop raising interest rates,” Yun said in a statement. “More effort should be directed toward raising the housing supply by focusing on worker training in homebuilding and lessening barriers to construction so that once interest rates decline, there will not be a resurgence of rapid home price growth.”
Mortgage Bankers Association (MBA) Chief Economist Mike Fratantoni called the report “conflicting,” adding that it “reinforces” MBA’s forecast of an economic slowdown through the second half of this year, followed by a recovery in early 2024.
“While job growth and wage growth are trending down, both are still well above the pace that would be consistent with the Federal Reserve’s inflation target. We now expect that the FOMC will raise the federal funds target another 25 basis points at its July meeting,” Fratantoni said in a statement.
By the numbers
Through late 2022 and early 2023, only a few job sectors showed signs of significant weakness—tech most notably, as large companies like Amazon, Meta and Google shed thousands of employees and cut costs. Even as the overall labor market appears to weaken, there was no single category clearly on a downturn.
In particular, construction jobs—which are an important indicator for a strong future housing market—remained strong, with 10,000 new residential specialty payrolls, and 23,000 more overall.
Leisure and hospitality, the sector most affected by the pandemic, was up 21,000 jobs, but still below pre-pandemic levels. Healthcare jobs were up, as were business and professional services.
Sturtevant characterized these data points as encouraging overall.
“The employment report shows that there were relatively strong gains in the Services sector, and June’s jobs gain was still higher than the pre-pandemic average,” she said.
Wages—another metric the Fed is watching closely—were up slightly above expectations, 0.4% and 4.4% year-over-year. While inflation has erased much of the real gains created by rising pay for workers over the last year, demand for labor seemingly remains high.
“Workers’ standard of living…is rising for the first time in two years, even with lower wage gains because consumer price inflation is a bit lower,” Yun noted.
But the medium-term outlook remains unclear, with many economists still predicting at least a mild recession and plenty of other potential pitfalls, including a downturn in the commercial real estate sector exacerbated by banking woes. But Sturtevant said the employment picture—at least right now—creates hope that there is still a path that avoids the worst economic outcomes.
“The modest slowdown in the labor market could give the Fed renewed confidence in its ability to bring the economy in for a soft landing,” Sturtevant said.
