Hello, my friends!
This was, of course, an economic week shortened by the July 4th holiday, but there still was no shortage of high-profile data to process, including several key updates on the health of the labor market.
June Nonfarm Payrolls Crush Estimate, but Report Yields Disquieting Details
On Thursday, the Labor Department released the week’s highlight economic data report – nonfarm payrolls for June – which revealed a bigger-than-expected increase in jobs last month.
The government’s numbers showed that the economy added 147,000 jobs in June…slightly more than the 144,000 picked up in May and a lot more than the consensus estimate of 110,000.
Notable, too, was where the official unemployment rate landed: 4.1%, which was a wholly unexpected improvement on May’s 4.2% rate. Heading into the week, economists were looking for headline U-3 unemployment to have ticked up in June to 4.3%.
While the report’s macro numbers were largely praised by observers, a closer look at the data reveals a jobs picture that’s not all sunshine and roses.
For one thing, the surprising drop in the unemployment rate was attributed to a decline in the number of people looking for work. According to the data, the percentage of Americans aged 16 and older who were working or looking for work in June fell to 62.3%…the lowest level since December 2022. The number of people who hadn’t looked for a job in the previous four weeks jumped by 234,000 to 1.8 million.
Other potentially concerning information conveyed by the report includes the percentage of unemployed workers who’ve been jobless for 27 weeks or longer – that rose to 23.3%, which is the highest it’s been in nearly three years. Also, jobs in the manufacturing sector…responsible for 10% of the nation’s economic output…sank for the second straight month. And the length of an average workweek declined by one-tenth of an hour last month, to 34.2 hours total.
Job Openings Surge in May…but Hiring Rate Remains at Lowest Levels in Nearly a Decade
Other widely followed jobs numbers released this week also seemed to imply a labor market that simultaneously remains resilient and a bit fragile.
One of those metrics is the May Job Openings and Labor Turnover Survey – known less formally as the JOLTS report – released on Tuesday by the Bureau of Labor Statistics.
According to the data, job openings in May unexpectedly rose to 7.76 million…a six-month high that’s well above the 7.39 million openings posted in April and considerably more than the 7.3 million openings projected by economists.
Still, openings, overall, remain about 35% below where they were three years ago. And while job openings have ticked up, at 3.4% the hiring rate remains around its lowest level in nearly a decade.
Layoffs, however, dropped to 1.6 million in May, putting the rate of layoffs near all-time lows and making the unfortunate hiring rate appear less ominous.
“Hiring remains depressed, but that is less worrisome than it would be otherwise because layoffs continue to be low,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Private Sector Payrolls Post First Decline in More Than Two Years
Another popular measure of labor market strength, the National Employment Report from payroll processor ADP, also appeared to convey the image of a jobs picture that’s both steady and uncertain.
According to the report released on Wednesday, the private sector lost 33,000 jobs in June, the first outright decline since March 2023. That’s well off May’s uptick by 29,000 jobs and an obviously big letdown from the increase of 95,000 jobs that had been the consensus estimate of economists polled by Reuters.
Dr. Nela Richardson, chief economist at ADP, noted that while uncertainty continues to permeate the macro job market, that same uncertainty is keeping layoffs in check as employers struggle to navigate the economy right now.
“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” said Richardson.
In fact, planned job cuts by U.S. employers saw a big drop in June according to global outplacement firm Challenger, Gray & Christmas, declining by 49% from May to land at 47,999.
Chicago-Area Manufacturing Activity Sinks Deeper Into Contraction Territory
This week also saw the release of a couple of key measures of manufacturing activity; one regional and one national…but neither particularly hopeful.
First up was the June Chicago Business Barometer, known less formally as Chicago PMI (Purchasing Managers’ Index), released on Monday by the Institute for Supply Management (ISM).
ISM reported that the metric came in last month at 40.4…a tenth of a point below the May reading but well below the 43.0 projected by economists polled by The Wall Street Journal.
In addition to falling short of economists’ forecast, last month’s number marked not only the lowest for the barometer since January but also proved to be the 19th straight month the index landed below the critical level of 50 that distinguishes contraction from expansion in the manufacturing sector.
Notably, in response to a survey question asking Chicago-area business owners how they see their own business activity growing in the second half of the year, 45% of them said they expect to see either no growth or a decline in activity through the rest of 2025.
Nationwide Manufacturing PMI Contracts Fourth Straight Month and 29th Time in Previous 32 Months
The following day, Tuesday, ISM was back to provide the latest update on production activity throughout the country with the release of its proprietary Manufacturing Purchasing Managers’ Index for June.
Although the index landed at 49, putting it in contraction territory for the fourth straight month as well as for the 29th time in the last 32 months, the number was a slight improvement over both April’s 48.5 reading and the 48.8 measure projected by economists.
“In June, U.S. manufacturing activity slowed its rate of contraction, with improvements in inventories and production the biggest factors in the 0.5 percentage point gain in the Manufacturing PMI,” noted Susan Spence, chair of the ISM Manufacturing Business Survey Committee.
However, the better index numbers seem to belie considerable frustration and even worry on the part of many U.S. producers, with one survey respondent saying:
“Tariffs, chaos, sluggish economy, rising prices, Ukraine, Iran, geopolitical unrest around the world — all make for a landscape that is hellacious, and fatigue is setting in due to dealing with these issues across the spectrum. Unfortunately, this is just the beginning unless something drastically changes.”
That’s it for now; enjoy the rest of your holiday weekend!
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