A Split Decision on the U.S. Job Market in June | Lord Abbett
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Economic Insights

Weighing the divergence in the establishment and household components of the U.S. employment report for June 2021–and the policy and investment implications

Read time: 2 minutes

The June U.S. employment report, released on July 2, 2021, by the U.S. Bureau of Labor Statistics, had a split decision with respect to the health of the labor market. The establishment survey, which measures employment, hours, and earnings in the nonfarm sector, reported a larger-than-expected increase in jobs. Meanwhile, the component of the report that surveys U.S. households reported a decline in jobs and a 0.1% increase in the unemployment rate.

Behind the Numbers

U.S. nonfarm payroll employment rose by 850,000 in June as ongoing strength in leisure and hospitality (L&H) industries and a strong recovery in education, especially the public sector portion, resulted in 175,000 more additional jobs than expected. L&H and education accounted for 72% of job creation in June. However, those sectors also account for a disproportionate 45% of the 6.76 million jobs that are “missing” compared to peak employment in February 2020. A very large portion of the additional jobs still missing are in Retail Trade (303,000), Information (178,000), Professional and Business Services (633,000), Health and Social Services (773,000), and Leisure and Hospitality (2,181,000). Recovery in goods-producing industries, construction, and manufacturing, has been hampered by parts shortages as opposed to a lack of demand.

In contrast to the establishment survey, the household survey reported a slight decline in employment and an even larger drop in full-time jobs. Thus, the unemployment rate rose by 0.1%, to 5.9%. The broader U-6 unemployment rate (the percentage of the labor force that is unemployed, underemployed, or discouraged from seeking jobs) fell from 10.2% to 9.8% as there was a sharp decline in people working part-time that would have preferred full-time jobs. Note that despite the divergence in June, the household and payroll surveys are in fairly close alignment over the entire course of the recovery: both show that roughly 70% of the jobs lost during the recession in 2020 have been restored and that roughly 7 million are still missing.

To complicate matters, however, the persistence of slack in the labor market is not easing pressure on labor costs. In fact, wages are rising more rapidly than expected as employers are having trouble bringing workers back to lower-paying jobs. This appears to be associated with a drop in labor supply that, if persistent, could cause the Fed to recalibrate its employment goals and reduce length of the runway before it begins tightening.

Investment Implications

While the two surveys often deviate from month to month, they agree over longer periods. Thus, the overall assessment for June is that, despite the large increase in payroll employment, the labor market made little additional progress towards the U.S. Federal Reserve’s (Fed) goal of maximum employment, delaying the timetable for removing monetary accommodation. We believe that is positive for risk assets overall despite the potential for a modest steepening of the yield curve due to a drop in rates at shorter maturities.


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