U.S. job gains top estimates; jobless rate holds at 3.6%

U.S. employers added more jobs in June than forecast and the unemployment rate held near a five-decade low, signs of both strong demand and a tight labor market that will keep Federal Reserve officials tilted toward another jumbo interest-rate hike.

Nonfarm payrolls rose 372,000 last month following a revised 384,000 in May, a Labor Department report showed Friday.

The unemployment rate was unchanged at 3.6% as the pool of available workers shrank, and wage growth remained firm.

The unexpected strength in hiring bucked forecasts for a slowdown and underscores the stark contrast between the resilience of the jobs market and fears of a recession.

Meanwhile, a drop in the participation rate corroborates many complaints about worker shortages and the difficulty employers face filling millions of open positions – a recipe for sustained wage pressures.

“The labor market is very hot,” Jeffrey Rosenberg, senior portfolio manager for systematic multi-strategy at BlackRock Inc., said on Bloomberg Television. “The Fed has to do more.”

Atlanta Fed President Raphael Bostic said after the report that he backs raising the benchmark rate 75 basis points at the central bank’s meeting later this month.

Treasury yields surged, the S&P 500 opened lower and the dollar index gained as markets extended bets on steep Fed interest-rate hikes.

Swaps traders increased to about 97% the probability of the Fed lifting rates this month by 75 basis points from about 93% before the data.

“The June jobs report came in strong not only on the headline but below the surface too, confirming that the labor market remains tight and empowering the Fed to maintain the intensity of its inflation fight,” economists Yelena Shulyatyeva and Andrew Husby wrote in a note for Bloomberg Economics.

The gain in payrolls was broad-based, led by business services, leisure and hospitality, and health care.

While a number of companies did announce plans in June to cut staffing levels, layoffs have so far been largely concentrated in technology and interest-rate sensitive sectors like housing.

The report showed the smallest gain in financial activities payrolls in a year.

The labor force participation rate – the share of the population that is working or looking for work – slipped to 62.2%, and the rate for workers ages 25-54 declined to a four-month low of 82.3%.

The number of Americans not in the labor force rose by about half a million to the highest level this year.

The participation rates declined for Black and Asian workers and were unchanged for Hispanic and White workers.

Friday’s report showed that average hourly earnings rose 0.3% from the prior month, in line with projections.

Earnings advanced by a still-elevated 5.1% from a year earlier after an upwardly revised 5.3% gain in May.

For months, employers have been bidding up wages to attract and retain workers, but in the aggregate, pay is still falling short of rapidly increasing prices.

While the Fed would welcome a cooling in wage pressures as they seek to limit inflation, a marked slowing in earnings at a time when prices are still extremely high would further curb consumers’ ability to keep spending.

Inflation is now at a 40-year high and broad-based. Costs have ballooned at grocery stores and gas stations, contributing to President Joe Biden’s dismal approval ratings just months before the November mid-term elections.

The Fed has committed to fighting inflation, but concerns are rising the central bank may ultimately tip the economy into recession in the process.

For now, however, the payroll gains are more “consistent with a raging economic boom,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.