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Despite more than a year of consistent recession predictions, rising interest rates, and stubborn inflation, the labor market continues to prove its resilience. On Friday, government data revealed something like a Goldilocks jobs report to Wall Street investors who had been worried by a shocking data drop the day before. U.S. employers added 209,000 jobs in June, the Bureau of Labor Statistics (BLS) reported Friday. The figure missed economists’ consensus forecast for 230,000 new jobs and amounted to the smallest monthly gain since January 2021—but that was good news for traders who were jarred by Thursday’s ADP private payrolls report which claimed that 497,000 jobs were added to the private sector last month. The ADP data had sparked concerns that the Federal Reserve may need to keep raising interest rates in order to slow the economy and truly tame inflation. But Friday’s BLS report was the first time in 15 months that job growth has come in below economists’ expectations, and the experts argue that actually, that’s good news.
Dave Gilbertson, a labor economist at the payroll processor UKG, said that although job growth “might not blow the doors off,” he still doesn’t see any “cracks” in the labor market, and the recent slowdown could enable the Fed to achieve a soft landing after all—where inflation fades without a job-killing recession. “The U.S. labor market moderated in June, as new job creation edged down—a step towards the much sought-after soft landing in the economy. Today’s report reinforced UKG’s assessment that the labor market is holding up very well, but it’s not on fire,” he said.
The latest jobs data clearly weren’t red-hot, but June’s job gains were enough to push the unemployment rate down to 3.7%, from 3.6% the month before. That compares to an average unemployment rate of 5.1% over the past decade, according to Federal Reserve data.
“Despite coming in a bit below our and Street economists’ consensus estimates today, at 209,000 jobs gained, the labor market data did little to dissuade us from the view that the employment dynamic in the U.S. is still solid,” Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income and head of the BlackRock Global Allocation Investment Team, told Fortune. “The full labor market picture is clearly still running at a decent level and shows little sign of rolling over, even as interest rates move higher and higher.”
The Biden administration was quick to celebrate the solid jobs report Friday, calling it evidence of “Bidenomics in action” and noting that the current streak of consecutive months of low unemployment is unmatched in any decade going all the way back to the 1960s.
“Inflation has come down by more than half. We are seeing stable and steady growth. That’s Bidenomics—growing the economy by creating jobs, lowering costs for hardworking families, and making smart investments in America,” the White House said in a statement.
Nick Bunker, head of economic research at the Indeed Hiring Lab, told Fortune that 209,000 new jobs shouldn’t be balked at by economists or investors, either. Due to a major slowdown in U.S. population growth, Bunker argued the economy only needs to add between 60,000 and 80,000 jobs per month to maintain current unemployment levels. “So gains in excess of 200,000 are more than double the pace needed to keep the labor market tight,” he explained.
The prime-age employment-to-population ratio, which measures the share of workers ages 25 to 54 in the labor force, also rose to a 22-year high of 80.9% last month, according to Federal Reserve data. And among women, it reached 75.3%, the highest level on record.
Bunker said the prime-age employment data is evidence that persistent pessimism about the state of the economy from both Wall Street and Main Street hasn’t yet “weighed down” the labor market.
“Payroll gains have moderated, but hiring continues to be strong by any objective standard. People in their prime working years are rejoining the labor force after concerns last year that workers would never return,” he said. “The U.S. labor market wrapped up the first half of 2023 in a position of strength. It’ll take something dramatic happening to derail it anytime soon.”
In another positive sign for the U.S. economy, after disappointing data from the manufacturing sector came in last week, the services sector showed continued strength on Friday. The ISM Services Purchasing Managers Index (PMI), which measures the health of the services sector by looking at data like inventories, new orders, and production, rebounded from 50.3 in May to 53.9 last month, its highest level since February. A reading above 50 indicates expansion in the sector.
The index also revealed fading cost inflation in the services sector. “The ISM Services PMI delivered excellent news in June, with a solid increase in activity and input cost pressures cooling notably,” Bill Adams, Comerica Bank’s chief economist, said of the data, calling it a “Goldilocks” surprise.
What’s next for the economy, the labor market and the Fed?
Despite the recent string of good news for the economy, some experts remain convinced that a recession is inevitable. Wells Fargo Investment Institute president Darrell Cronk, for example, said the evidence remains overwhelming that a “recession is at our doorstep” at a midyear outlook presentation last month, pointing to the consistent drop in the Conference Board’s Leading Economic Index, which looks at data like building permits, average weekly hours worked, and manufacturers’ new orders to get a sense of the health of the economy.
Indeed’s Bunker admitted that the labor market is also showing signs of “slowing,” but he noted that it’s doing so from a position of strength. “Nothing is guaranteed, but the U.S. labor market continues to point toward a slower, but more sustainable pace of economic growth,” he said. “Recessions happen. But for now, demand for new hires remains elevated and employers are still holding onto the workers they have.”
Bunker is not the only one seeing the bright side of the latest jobs report, either.
ZipRecruiter’s chief economist Julia Pollak told Fortune that even though there were signs that the Fed’s rate hikes are “finally biting,” she remains optimistic about the future of the labor market. The economist noted that employment levels are still well below what they would have been without the pandemic, which means there’s ongoing “catch-up hiring” in many industries.
“Anyone who has been to a restaurant or airport lately knows America is still understaffed,” she said, adding that average weekly earnings growth of 3.7% in June was also “consistent with a continued slowdown in inflation” that will help the Fed.
Candice Tse, global head of strategic advisory solutions at Goldman Sachs Asset Management, said that the latest jobs data shows the labor market remains “tight,” which will lead Fed officials to continue raising interest rates—but not for much longer.
“The print reinforces the fact that labor rebalancing issues persist,” she told Fortune. “[T]he Fed is poised to continue its hiking cycle this month…However, we continue to expect that the Fed will soon reach its terminal rate, bringing it closer toward the end of its most aggressive tightening campaign in generations.”
