The U.S. economy added a stronger-than-expected 372,000 jobs in June as the unemployment rate held at 3.6%. After a jobs report that slightly dampened hopes for a soft landing for the U.S. economy, the Dow Jones industrial average opened lower, reversed moderately higher, then faded again as the 10-year Treasury yield jumped.
The average hourly wage rose 0.4% on the month vs. expectations of 0.3%. Annual wage growth of 5.1% topped forecasts of 5.0%, though easing from May's 5.2%.
Private-sector payrolls rose 381,000 in June, while government jobs fell by 9,000.
Wall Street had expected the June jobs report to show a gain of 270,000 jobs, including 228,000 in the private sector. The jobless rate was expected to hold at 3.6% for a fourth-straight month. Job gains for April and May were revised down by 74,000. The initially reported gain of 390,000 jobs in May was revised to 384,000.
While wage gains are still historically strong, they're not close to keeping up with inflation. The annual CPI inflation rate was 8.6% in May.
The firm jobs report is unlikely to alter expectations for a 75-basis-point rate hike at the Federal Reserve's July 26-27 meeting.
The headline job and wage figures come from the Labor Department's monthly survey of employers. A separate household survey, which is used to derive the unemployment rate, showed that the ranks of the employed actually fell in June. But that won't soothe Fed worries about a too-strong job market for two reasons. First, the household survey comes with a higher margin of error, so is less reliable. Second, the survey also showed that the labor force shrank in June. The Fed is hoping that labor force growth will help take the steam out of wage pressures.
Dow Jones, Treasury Yields React To Jobs Report
After the jobs report, the Dow Jones rose slipped 0.2% in Friday afternoon stock market action. The S&P 500 lost 0.4% and the Nasdaq composite 0.6%.
As of Thursday's close, the Dow is down 14.7% from its all-time closing high on Jan. 4, but up 5% from its 52-week low on June 17. The S&P 500 has rallied 6.4% from its recent closing low, but remains 18.6% off its peak. The Nasdaq's 9.2% rally from its June 16 close still leaves it 27.6% below its all-time closing high.
The stock market had rallied in recent days as investors reacted to evidence the economy is slowing sharply and an accompanying drop in prices of oil and other commodities. The outlook for slow growth and possible recession has seen the 10-year Treasury yield pull back from its mid-June high of 3.48%.
After the jobs report, the 10-year Treasury yield rose 11 basis points to 3.09%.
A brush with recession appears to be coming faster than anticipated. That means the Fed won't have to raise rates as high as expected. Yet while expectations for Fed pivot to slower tightening may spark a rally, there's reason for caution. Given that job openings are still elevated and the unemployment rate is near a half-century low, the Fed won't let its guard down quickly.
Be sure to read IBD's The Big Picture every day to stay in sync with the market direction and what it means for your trading decisions.
Jobs Report Details
The leisure and hospitality sector added 67,000 jobs. Factory employment grew by 29,000.
Construction jobs rose by 13,000. Health care and social assistance payrolls rose 78,000. Retailers added 15,000 jobs, while transportation and warehousing jobs rose 35,500.
The breadth of hiring remained strong with the diffusion index rising to 68.6 from 67 in May. That reflects the share of industries that added jobs and half of the industries in which employment was stable.
While overall wage growth eased, wage growth among production and nonsupervisory workers remained firm, rising 0.5% on the month and 6.4% from a year ago.
Unemployment Rate
The household survey, which is used to derive the unemployment rate showed that the ranks of the employed fell 315,000. The number of people participating in the labor force, meaning they're working or actively looking for a job, fell by an even greater 353,000.
The share of the working age population (age 16 and up) participating in the labor force dipped to 62.s%.
According to the monthly survey of households, 5.9 million Americans are unemployed. That compares to 5.8 million unemployed in February 2020.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
