The U.S. economy added 209,000 jobs in June. While it was a smaller increase than expected, it still lowered the unemployment rate to a solid 3.6%.
For the Pittsburgh region, whose figures lag behind the national data, the unemployment rate dropped one-tenth of a percentage point to a 47-year-record low of 4.1% in May.
These numbers are released monthly, and it’s easy for most people to get lost in the economic indicators.
So, what do they mean? And why is the unemployment rate so tied to inflation and interest rates?
One takeaway: It’s a good time to be looking for a job, according to David Hand, a statistician for the Pennsylvania Department of Labor & Industry.
“There’s a lot of jobs out there that are going unfilled, and there’s not many people to fill them,” he said. “It’s a tight labor market.”
The large number of retirements that occurred during the covid-19 pandemic created some of the job openings.
“It’s something we’ve been anticipating for a long time,” said Lauren Riegel, statistician supervisor with the Department of Labor & Industry. “In a lot of areas in Pennsylvania, we have an older population. So there’s a smaller pool of people to hire from.
“That’s given more power to people who are looking for jobs, or are employed. And it means that employers need to do something to entice people to want to work for them.”
On a national level, the release of the June numbers gives us a look at the first half of the year.
“The June jobs report will essentially close the book on the job market for the first half of the year, leaving aside future revisions of the data,” said Mark Hamrick, senior economic analyst for Bankrate.com. “With everything that’s been thrown at the economy, it is remarkable that jobs creation has been as solid as it has been, and that the nation’s unemployment rate remains so low. But it has not been without pain, given surging job cuts.”
Overall, more people are working and looking for work, he noted.
In the first six months of the year, payroll growth averaged 278,000 jobs a month, which compares with roughly 399,000 last year.
“Typically, we would not be complaining about a pace of even 209,000 jobs added as they were in June,” Hamrick said.
“I think the broader takeaway is to try to get away from the very up-close view — the job market and the economy broadly proved more sustainable than might have been expected given the fact that the Fed started raising interest rates in March of last year,” Hamrick said.
What this means for interest rates
But it’s more complicated than just how many jobs are available and how many people are looking.
The Federal Reserve still wants to raise interest rates in an effort to curb inflation.
The Fed’s target rate of inflation is 2% per year. The current rate is about double that target. However, inflation has fallen significantly from its peak of 9.1% last year.
As a way to control inflation, the Fed influences interest rates. When inflation is too high, the Fed can raise rates to slow the economy. When inflation is too low, it can lower rates to stimulate the economy.
In a June 29 speech, Fed Chairman Jerome Powell said, “Inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”
Powell said rates could go up two or more times this year.
“The Fed would like to see a bit more slack in the labor market,” said Gus Faucher, chief economist for PNC Financial Services Group. “The Fed’s view is a softer labor market would reduce wage pressures in the economy and help push inflation back down to 2%.
“When you put it all together from that perspective, the Fed wants to see a little slower economic growth. First, we see the economy slow, and then we see the labor market slow. Alternatively, if the economy picks up, it takes a few months before the labor market picks up because businesses don’t want to hire until they’re sure that the stronger demand is going to last.”
Recession concerns
Hamrick said that while the economy appears to have skirted a recession so far, certain sectors have experienced sharp slowdowns, “in part because of Fed tightening.”
“These include technology, media/entertainment, manufacturing, shipping, and the financial sector,” Hamrick said. “For people who have lost jobs or challenging prospects in these harder-hit sectors, the question of a broader slowdown might seem academic.”
“The plight of the economy, including the job market, through the end of this year, remains a question,” he said. “If the inflation fighting Fed feels compelled to raise interest rates further, as it has recently signaled, risks of economic contraction remain, or even grow.”
Faucher notes that the strong labor market and continued consumer spending have kept the economy moving forward.
“But the Fed has been raising interest rates for a year and a half now. We have not felt the full impact of those higher interest rates.
”I do expect that we could get a mild recession by late this year or early next year as higher interest rates work their way through the economy.”
Stephanie Ritenbaugh is a Tribune-Review staff writer. You can contact Stephanie at sritenbaugh@triblive.com.
See the entire article on Arizona’s unemployment, or, read more Arizona real estate investing news. The choice is up to you.