US labor market is cooling further

The US labor market continued to lose momentum in June. This is less evident in the number of new jobs, which at 206 thousand is once again quite high.

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Dr Christoph Balz, Bernd Weidensteiner

Commerzbank Economic Research

July 5 2024

However, the previous months' data were revised downwards significantly, the unemployment rate rose further to 4.1% and wage growth fell to below 4%. The Fed will probably soon no longer have the luxury of focusing exclusively on combating inflation.

The data ...

In June, payroll growth in the US amounted to 206 thousand. This is roughly as expected (consensus 190 thousand, Commerzbank forecast: 200 thousand). However, the figures for April and May were revised downwards by a total of 111 thousand. The unemployment rate rose from 4.0% to 4.1% (consensus and Commerzbank forecast: 4.0%).

... and the background

Virtually all the details of today's US labor market report point to a slowdown. The sharp downward revision in job growth in April and May means that the trend is weaker than assumed. And even the decent June result was boosted by 70 thousand new government jobs. Private business, on the other hand, is apparently holding back on hiring new staff.

Accordingly, average hourly earnings are rising more slowly. In June, the increase was 0.3% compared to the previous month. Year-on-year growth fell below 4% for the first time since the pandemic, to 3.9%.

At the same time, the unemployment rate is climbing slowly but steadily (the unemployment rate is based on a different survey than nonfarm payrolls). According to a rule established by economist Claudia Sahm, a recession is imminent if the three-month average of the unemployment rate rises by 0.5 percentage points or more from its low reached in the previous twelve months. The increase is now 0.4 percentage points, so the recession threshold could soon be reached.

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