June Looks Joyful for Jobs


By Michael Englund and Rick MacDonald The recent "jobless recovery" -- now thankfully in the rearview mirror -- served as a reminder that even when the economy achieves a solid growth trajectory, labor markets can remain slack. Well, if the June employment report, scheduled for release Friday, July 2, is any indication, that slack should soon be steadily disappearing.

We at Action Economics expect nonfarm payrolls to rise 225,000 in June, marking the fourth straight month of 200,000-plus growth. Indeed, the economy has added nearly 1 million jobs over the last three months. Overall, the momentum suggests that employment growth should remain solid in the near-term. The U.S. monthly economic data have continued to suggest that growth is proceeding at a solid clip.

NOT REALLY SLACK. We see the unemployment rate holding steady at 5.6%. While the jobless rate has been trending sideways in recent months, the current level of 5.6% is right in line with the historical average. As such, to characterize the labor market as having "slack" is misleading. While the labor market isn't tight, it's certainly not loose either.

As for other components of the report, we forecast the average workweek to rise to 33.9 hours, from 33.8 in May. We also expect a 0.3% gain in average hourly earnings.

The May employment report revealed widespread strength (see BW Online, 6/4/04, "A Sign of the Times: "Now Hiring""). Given the strong economic performance since the May survey period, the June data aren't expected to show much of a slowdown.

ONGOING STRENGTH. Although we believe the high for monthly payroll growth in 2004 will be the hefty 350,000 average rate seen in March and April, the figure could easily average 200,000 for the rest of the year. This ongoing strength in the labor market should support solid income growth -- and 4% to 6% real GDP growth -- through yearend.

The June jobs figures will be announced after the June 29-30 Federal Reserve policy meeting, at which the central bank is widely expected to hike the fed funds target rate by a quarter-point. But how might the report play into future Fed moves? While a result in line with our expectations would reflect continued improvement in the labor market, it would also lessen the changes for an aggressive rate hike by Alan Greenspan & Co. in August. Englund is chief economist, and MacDonald director of investment research and analysis, for Action Economics


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