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Strong Rise in New Hires Highlights Mixed Employment Report

Nonfarm payroll jobs jumped 287,000 in June – the highest one-month gain since October 2015, according to the U.S. Department of Labor Employment Report issued July 8 (Exhibit 1). On the other hand, the already weak employment gain from May was revised downward from 38,000 to just 11,000 new jobs.

The combined total of the past two months works out to an averageChart 1 of 149,000 new jobs per month, which is at the low end of the range this year. In the past 12 months prior to April, job growth had averaged about 230,000 new jobs per month.

Job growth in June was strongest in leisure and entertainment, health care, professional and business services, and financial services.

Although the 287,000 new hires in June were higher than expected (economists surveyed by Reuters had said, on average, that they were expecting nonfarm payrolls to grow by about 175,000 for June), the Chart 2combined total of the past two months was consistent with our modest expectations for economic growth this year.

Despite the raft of new hires in June, the unemployment rate actually ticked up from 4.7% to 4.9%, which is still considered low by historical standards (Exhibit 2). The uptick in unemployment was due primarily to a large number of people entering the workforce and beginning to look for work, which could also be interpreted as a positive sign for the economy.

The labor participation rate for those in their prime working years (age 25 to 54) continues to be a point of concern, and has still not reached the level of Chart 3participation prior to the 2008–2010 recession (Exhibit 3).

Here are some other highlights of June's employment report:

  • The average work week, a leading indicator, remained flat at 34.4 hours for the fifth consecutive month (Exhibit 4).
  • Initial unemployment claims, also a leading indicator, remain at an extraordinary low level (Exhibit 5).
  • Over the past 12 months, average hourly earnings have risen at a faster pace than inflation. While earnings have grown by 2.6%, the consumer price index for all urban consumers (CPI-U) had increased by justExhibit 4 1.1% year-over-year through May.

Our outlook for 2016 economic growth in the US remains modest at around 1.0% percent. That is somewhat lower than the average view of 1.9%, according to the June Blue Chip survey report.

In spite of the strong employment growth in June, we believe the Federal Reserve will remain cautious about tightening monetary policy due to the downside risks to the global economy, heightened uncertainty following Brexit, the slow pace of economic growth in the U.S. and overseas, low Exhibit 5productivity growth and subdued inflation.

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