Wage growth in the United States has decelerated, but it continues to surpass consumer inflation rates, according to recent data. However, this trend has not translated into optimism regarding the broader economy, posing a challenge for President Joe Biden as he seeks reelection.
In response to the latest economic report, President Biden acknowledged the progress but emphasized the need for further efforts. “We have more work to do, but wages are growing faster than prices and more Americans are joining the workforce,” he stated.
The Labor Department reported that the country added 206,000 jobs in the previous month, a slower pace compared to May’s revised figure of 218,000. Despite the slowdown, the job gains exceeded the Briefing.com consensus estimate of 185,000, indicating that the labor market remains relatively robust despite the pressures of high interest rates.
The unemployment rate edged up from 4.0 percent to 4.1 percent, the highest level since November 2021, ending a 30-month period where the rate was at or below 4.0 percent. Julia Pollak, chief economist at ZipRecruiter, described the current figures as pointing to a “very gradual, orderly cooling” of the labor market. However, she highlighted signs of underlying weakness, including downward revisions to hiring numbers for April and May by a total of 111,000 jobs.
The latest data also revealed that more than one-third of the job gains came from government employment, which, according to Mike Fratantoni, chief economist at the Mortgage Bankers Association, suggests that the headline figures may not fully reflect the labor market’s overall health. Fratantoni noted a decrease of 49,000 in temporary hires, indicating a decline in business demand for labor.
Wage growth slowed from 0.4 percent in May to 0.3 percent in the latest month. On a year-over-year basis, wages increased by 3.9 percent, also showing a slowdown. Nancy Vanden Houten, an economist at Oxford Economics, predicted that weakening demand for labor would further moderate wage growth. This moderation in wage growth is likely to strengthen the Federal Reserve’s confidence that inflation is moving towards the policymakers’ target of two percent.
The economic report comes amid a downturn in business activity in the manufacturing and services sectors and easing inflation. These indicators suggest that the Federal Reserve may soon be confident enough to begin reducing interest rates, which have been held at high levels to curb demand and lower inflation. Such rate cuts are anticipated to boost the economy.
