Strong growth in US jobs despite recession fears, boosting odds of big Fed hike

U.S. job growth in June exceeded expectations, signaling that the labor market remains strong even as fears of a looming recession ripple through much of economy.

Nonfarm payrolls jumped by 372,000 in June, above the consensus expectation of 270,000 jobs added, according to Econoday.

"The better-than-expected job gain suggests the labor market continues to plow forward despite broader market concerns over an imminent recession," said Shannon Seery, an economist with Wells Fargo.

The unemployment rate was unchanged at 3.6%, the same it has been since March and essentially where it was before the global pandemic. U.S. unemployment has averaged 3.7% through the first six months of 2022, compared to 6.1% through the first six months of 2021.

"While markets and economists are increasingly worried about the economic outlook, it appears companies remain upbeat on their own progress with the appetite to hire appearing undimmed," James Knightley, chief international economist with ING, wrote in a July 8 note.

Participation lags

The data indicates that with new coronavirus cases continuing to top 100,000 per day, on average, in the United States, many Americans remain reluctant to rejoin the workforce. The labor force participation rate — the number of workers in the population in the job market — was at 62.2% in June, down slightly from 62.3% in May and still below its pre-pandemic level.

"Not only does hiring show little sign of a significant slowdown, but the limited recovery in labor force participation stands to keep the jobs market exceptionally tight," said Seery with Wells Fargo.

Another hike ahead

Although stocks are mired in one of the worst stretches in market history and the probability of a recession has pushed investors into the safety of government bonds and the U.S. dollar, the job market has yet to show signs of cooling.

Nearly all sectors of the labor force saw growth in June, including education and health services with 96,000 hires, professional and business services, which added 74,000 positions, and the pandemic-battered leisure and hospitality sector, which added 67,000 jobs. Total payrolls are now 524,000 below pre-pandemic highs.

The relative strength of the labor market will likely compel the Federal Reserve to continue to aggressively raise interest rates into the summer to combat soaring inflation, Knightley said. The Fed hiked its benchmark federal funds rate by 75 basis points in June, its largest since 1994, and is expected to boost by at least another 75 basis points at its meeting later this month.

The next consumer price index report, the market's preferred inflation measure, will be released July 13.