June Employment Report: What to Expect

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The US economy added 428,000 jobs in April as a range of industries hired
The US economy added 428,000 jobs in April as a range of industries hired

A labor market report that will be released at the end of this week by the Bureau of Labor Statistics (BLS) is expected to show that job growth in the U.S. slowed down, the unemployment rate and labor force participation held steady, and hourly earnings growth edged higher.

Tradingeconomics.com estimates that the U.S. economy added 300,000 jobs in June, down from 390,000 in May, the unemployment rate and labor force participation remained steady at 3.6% and 62.3%, respectively, while hourly earnings growth edged up from 0.3% to 0.4%.

The BLS labor market report includes two parts. The first part measures job growth through the establishment survey. It collects data each month from the payroll records of a sample of 144,000 businesses and government agencies on employment, hours, and earnings on nonfarm payrolls.

The second part of the BLS labor market report measures unemployment through a household survey. It collects monthly data from about 60,000 eligible households on labor force participation, hours of work, and unemployment.

The establishment and the unemployment parts of the labor market report that are usually published on the first Friday of the following month are inversely related. Strong job growth is associated with lower unemployment and vice versa. And both reports are closely related to hourly earnings. For instance, strong job growth and lower unemployment are associated with higher hourly wages and vice versa.

Sometimes, the relationship among these key labor market variables is complicated by factors like inflation and labor force participation rates. For instance, inflation pushes hourly wages higher, as employees demand higher wages to compensate for the loss of the purchasing power of their paychecks due to rising prices. Likewise, a low labor force participation could create labor shortages and lead to lower or steady unemployment even in the face of weaker job growth, as seems to be the case in the current labor market situation.

The expected slow-down in June job growth could result from a slowing U.S. economy due to soaring food and energy inflation. It forces American consumers to cut back purchases of goods and services. As a result, the world's largest economy's Gross Domestic Product (GDP) dipped 1.6% in the first quarter of 2022, and there are good chances that it will continue to decline in the second quarter. That will officially push the U.S. economy into a recession.

Soaring food and energy inflation and a slowing economy could lead to job cuts in the small business sector. "To stay afloat, most businesses will have to do more with less staff, less capital for investment, and less product to sell," Sean Sollitto, co-founder of Relish, told International Business Times.

In some sectors, the problem of slow job growth isn't the slowing economy but rather the shortage of qualified employees, like in the high-tech industry.

 "There is still a massive shortage of talent, Jacob Hess, co-founder & CAO at NGT Academy, told International Business Times. “From the recent tech layoffs, the labor market might see some relief in I.T. hiring with more new and fresh candidates in the talent pool. Companies are looking to scoop up tech employees with the right skillsets and experience to fill the demand."

And that could explain the disconnect between job growth and the unemployment rate this time.

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