U.S. June Job Gains a "Flashy but Hollow Result"

Increase of 147,000 Surpasses Forecast of 110,000
But Private Sector Job Growth Remains Weak, Labor Force Participation Hits Record Low
Slowing Wage Growth Leads to Labor Market Instability and Weakening Consumer Sentiment

On July 4, KB Securities pointed out that while the U.S. June employment figures appeared strong, they were merely a "flashy but hollow result," and it is difficult to say that the fundamentals of the labor market are actually improving.

On July 3 (local time), the U.S. Department of Labor announced that nonfarm payrolls increased by 147,000 in June compared to the previous month. This figure significantly exceeded the expert forecast of 110,000 compiled by Dow Jones. The unemployment rate was reported to have declined from 4.2% in May to 4.1% in June. Previously, there had been concerns in the market that the implementation of Trump's tariff policies could sharply weaken the labor market. As a result of the strong employment data, U.S. bond yields rose and the value of the dollar strengthened. The S&P 500 Index and the Nasdaq Composite Index both set new record highs on the same day.

According to KB Securities, while the release of this employment report has somewhat eased concerns about a U.S. recession, a closer look at the details shows that it is difficult to conclude that the fundamentals of the U.S. labor market are improving.

First, private sector employment was weak. In the June employment data, federal government jobs declined, but employment expanded mainly in state government (+47,000) and healthcare (+39,000). Private sector jobs increased by only 74,000, indicating a lackluster performance. Notably, even though the previous two months' figures were revised upward by 16,000, the private sector numbers were actually revised downward by 16,000. Considering that job creation in the private sector is already weak and that average weekly working hours decreased by 0.1 hours from the previous month, it appears that additional demand for hiring is not strong.

Second, the June employment report showed a decrease in the labor force participation rate alongside the decline in the unemployment rate. As of June, the participation rate fell by an additional 0.1 percentage point to 62.3%, the lowest level since December 2022. The total number of unemployed decreased by 222,000 from the previous month, while the number of employed increased by 93,000, and the labor force shrank by 130,000. In other words, more than half of the decline in the unemployment rate and the number of unemployed can be interpreted as a result of people giving up on job searching and leaving the labor force.

Ryu Jini, an economist at KB Securities, analyzed, "Given that the labor force participation rate always falls during recessions, it is more important to pay attention to whether the participation rate will decline further in the future rather than being pleased about the drop in the unemployment rate," adding, "As wage growth slows, concerns about the labor market can easily lead to a deterioration in consumer sentiment."