U.S. job growth surged more than expected in June, keeping the Federal Reserve on course for a third interest rate hike this year, despite slow wage gains.
According to the Labor Department’s release on Friday morning, non-farm payrolls jumped by 220,000 jobs last month, exceeding economists’ expectations for a gain of 179,000 jobs. Data from May and April was revised to show 47,000 more jobs created than previously reported.
The unemployment rate rose to 4.4 percent from a 16-year low of 4.3 percent in May, which actually demonstrates a sign of confidence in the labor market since more people joined the workforce. The jobless rate has fallen four-tenths of a percentage point this year and is near the most recent Fed median forecast for 2017. The average workweek increased to 34.5 hours from 34.4 hours in May.
The department’s report, however, showed that wage growth remains sluggish. Average hourly earnings increased four cents, or 0.2 percent, in June after gaining 0.1 percent in May. That lifted the year-on-year wage increase to 2.5 percent from 2.4 percent in May.
“The payroll number is well above expectations,” said Jim O’Sullivan, chief United States economist for High Frequency Economics. “But the wage numbers are certainly weaker than expected, so it keeps alive the whole debate about the relationship between slack and inflation and how far the Federal Reserve should allow the unemployment rate to fall.”
A broader measure of unemployment, including discouraged workers and those who are working part time but prefer full-time work, inched up to 8.6 percent in June from 8.4 percent in May. Still, that figure is a point lower than it was this time last year.
Economists assume that an increased demand for labor should drive up wages, but that supposedly ironclad link is turning out to be much more elastic. Hourly wage growth has plodded along at an annual rate of roughly 2.5 percent in recent months, but even that number is misleading, because most of the gains have gone to more highly skilled workers, said Robert Frick, corporate economist at Navy Federal Credit Union.
As Mr. Stull, of Manpower North America, put it, “The job market is like driving on a Friday afternoon in the summer. We keep moving forward but not nearly as fast as we’d like to.”