U.S. employers added 206,000 jobs in June, a sign of continued economic growth

WASHINGTON — U.S. employers had another strong month of hiring in June, adding 206,000 jobs and demonstrating once again the U.S. economy's ability to withstand high interest rates.

Last month's job growth was down from 218,000 in May. But it was still a solid gain, reflecting the resilience of the U.S. economy, driven by slowing but steady growth in consumption.

Still, the Labor Department’s report released Friday contained several signs that the job market is slowing. The unemployment rate rose to 4.1% from 4%, still low but the highest rate since November 2021. The rate rose largely because 277,000 people began looking for work in June, and not all of them found jobs right away.

The government also sharply revised down its estimate of job growth for April and May, by 111,000 jobs in total. It also said average hourly earnings rose just 0.3% from May and 3.9% from June 2023. That year-over-year figure is the smallest such increase since June 2021 and will likely be welcomed by the Federal Reserve as it seeks to fully conquer inflation. Most economists expect the Fed to begin cutting its benchmark rate in September, and the details of Friday’s jobs report did nothing to counter that expectation.

Two government sectors alone and a category including health care and social assistance, which do not reflect the underlying strength of the economy, accounted for about three-quarters of June’s job growth. Economists also noted that job growth from April to June averaged 177,000, a decent number but still the lowest quarterly average since January 2021.

Other economists, while acknowledging that the labor market is slowing, suggest that it remains resilient.

“Hiring in May and June exceeded 200,000, even after revision, and the trajectory appears stable,” said Eric Winograd, U.S. economist at AllianceBernstein. “The best available evidence shows that the labor market remains strong and any deceleration remains modest.”

The state of the economy is weighing heavily on voters’ minds as the presidential campaign heats up. Despite steady hiring, relatively few layoffs and gradually declining inflation, many Americans are frustrated by persistently high prices and are blaming President Joe Biden for the situation.

Economists have repeatedly predicted that the labor market would lose momentum in the face of the Fed’s high rates, but job creation has continued to strengthen. Still, signs of an economic slowdown have emerged in the wake of the Fed’s string of rate hikes. U.S. gross domestic product (total output of goods and services) grew at a sluggish 1.4% annual pace from January through March, the slowest quarterly pace in nearly two years.

Consumer spending, which accounts for about 70% of all U.S. economic activity and has fueled the expansion over the past three years, rose just 1.5% last quarter, after advancing more than 3% in each of the previous two quarters. In addition, the number of job openings has declined steadily since hitting a record 12.2 million in March 2022.

At the same time, while employers are not hiring as heavily after struggling to fill positions over the past two years, they are not cutting many jobs either. Most workers enjoy an unusual level of job security.

Hal Lawton, CEO of Tractor Supply, a retail chain that serves customers in rural areas, said his company still feels pressure to raise wages. The average hourly wage for workers at Brentwood, Tennessee-based Tractor Supply is more than $16. And with rent and food prices high, workers are still looking for pay raises.

“The labor market is tight and frontline workers are feeling the strain on their budgets,” Lawton said. “They’re still looking for those pay raises.”

In 2022 and 2023, the Fed raised its policy rate 11 times in an attempt to beat the worst run of inflation in four decades, taking its policy rate to its highest level in 23 years. The resulting extremely high borrowing rates for consumers and businesses were widely expected to trigger a recession. They didn’t. Instead, the economy and labor market have shown surprising resilience.

At the same time, inflation has been steadily falling, from a peak of 9.1% in 2022 to 3.3%. In a speech this week at a conference in Portugal, Fed Chairman Jerome Powell noted that U.S. price increases were slowing again after higher readings earlier this year. Powell cautioned, however, that further evidence that inflation is approaching the Fed’s 2% target level would be needed before policymakers cut rates.

That’s the kind of report the Fed wants to see, said Gus Faucher, chief economist at PNC Financial Services Group. It’s looking pretty good. The labor market is not as strong as it was this time last year. But the labor market was unsustainably strong then.

Chris Thomas, a technology manager in Christiansburg, Virginia, said he can see firsthand that the job market has lost momentum. When Thomas began his job search in 2021, when tech startups were desperate to hire, he got interviews with about a third of the companies he applied to. It took him just a month to land a job.

But after he was laid off from a job at a startup in April, it became clear that the landscape had changed. He first looked for leads in his network of friends and associates. Without success. He then sent out hundreds of resumes to positions he thought he was qualified for. He received few responses.

Finally, after nearly three months of searching, Thomas landed a job at the end of June.

“This is a very, very different job market than we were in three years ago,” he said.

___

AP Retail writer Anne D'Innocenzio in New York and AP Economics writer Christopher Rugaber in Washington contributed to this report.

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