U.S. businesses added 206,000 jobs in June, which is in line with expectations, and the overall hiring is consistent with a cooling labor market.
For months in this column, I’ve been writing about how to reconcile the stories I hear from HR and recruiting leaders (“things are slowing down”) with the headline numbers in the jobs report that have been continually “smashing expectations.”
The challenge in writing about and studying the labor market right now is that it’s simultaneously true that the labor market is relatively strong by historical standards. However, that strong labor market doesn’t match the lived experiences of many workers, especially HR and recruiting leaders.
And with this job report, the headlines have finally caught up with what many feel.
What’s behind the cooling labor market?
To put things in context, 206,000 new jobs added would typically be considered a strong month of growth, above the 190,000 average monthly job gain from 2015 through 2019.
However, hiring totals for the previous two months were revised downward by 111,000 jobs. Revisions, especially downward, have become relatively commonplace in recent months, suggesting the labor market is often a bit cooler than initial estimates have suggested. Because of these revisions, you may hear or read stories calling into question labor market data, but this is a normal part of any data reporting process. Historically, a pattern of downward revisions has been an indication of an impending economic downturn, but it’s still too early to tell in this case.
Unemployment ticked up by more than expected last month. The unemployment rate reached 4.1%, marking the first time we’ve seen unemployment above 4% since November 2021. The good news here – if there is any good news when the unemployment rate rises – is that the uptick in unemployment in June was driven not by an increase in layoffs but rather a slowdown in hiring. So, it’s taking longer for unemployed workers or entering the labor force, like new college grads, to find work.
The final reason behind a cooling labor market won’t surprise those who have been paying attention to this column for the past several months. Job gains were once again concentrated in just a few industries in June – Government, Healthcare, and Social Assistance accounted for nearly 75% of new jobs added last month, while private-sector hiring has slowed considerably.
Things look very different for job seekers outside those booming sectors and recruiters hiring outside of those industries. The labor market feels more sluggish for businesses whose industries aren’t adding jobs at that pace.
Silver lining. Are interest rates coming down?
A cooling labor market presents challenges for job seekers and HR leaders, but this month’s jobs report, along with the latest inflation data, point to potential interest rate cuts by the Fed later this year. The last time the Fed raised interest rates was in July 2023. In every meeting since then, the labor market and inflation have been deemed too hot for a rate decrease that would lower borrowing costs for consumers and businesses. The slowdown in hiring is just one data point that could signal to the Fed it’s time to lower rates.
Wage growth is another data point the Fed watches closely regarding inflation. Businesses may raise employee compensation in response to price growth, and rising compensation, as a result of labor supply and demand conditions, can fuel consumer demand, leading to further increases in prices and inflation. Wages grew by 3.9% over the past 12 months, down from nearly 6% at the peak in early 2022.
Even better news for consumers and those hoping for interest rate cuts is June’s inflation reading, which shows that prices rose by 3% over the past year, just below expectations and well below the 3.3% price growth from May.
Wage growth has been outpacing inflation for over a year, boosting workers who have felt the crunch of rising prices.
Why now is the perfect time to fine-tune your hiring and compensation strategies.
After an entire column discussing the challenges HR and recruiters face in today’s labor market, it might seem counterintuitive, but now is a perfect time to bring additional value to your organization as we head into budget and merit planning season.
Hiring has slowed for many businesses, but you’re likely backfilling open roles and competing for talent in what is still a very tight labor market. Compensation will play an important role in how quickly and effectively your team is able to attract and retain talent.
I am hearing from many HR and TA leaders, especially those whose teams have lower hiring volumes, about efforts to conduct job analyses, implement new job hierarchies, and establish pay bands. These strategic efforts will pay dividends when (yes, when) hiring picks up.