U.S. economy adds 223,000 jobs in June; unemployment rate falls to 5.3%

Sophia Lewis, left, with PSEG Long Island, speaks to an attendee at a Citi Field job fair in New York on June 30.

Sophia Lewis, left, with PSEG Long Island, speaks to an attendee at a Citi Field job fair in New York on June 30.

(Mary Altaffer / Associated Press)

Despite another month of solid job growth and an economy closing in on full employment, the picture of America’s labor market looks decidedly mixed — and is likely to keep the Federal Reserve in a wait-and-see mode on raising interest rates.

Although employers added 223,000 jobs in June, in line with forecasters’ expectations, workers’ average wages flattened last month after a promising increase in May, the Labor Department said Thursday.

And while the jobless rate in June fell to a new post-recession low of 5.3%, from 5.5% in May, it dropped for the wrong reason: a large exodus of workers from the labor force.

The shrinking size of the workforce — the number of people working or looking for jobs — surprised analysts. Some experts have been looking for an uptick as the jobless rate has fallen steadily. Instead, the so-called labor force participation rate sank last month to the lowest level since October 1977.

“It is worrisome,” said Patrick O’Keefe, economic research director at CohnReznick, an accounting and consulting firm. When combined with sluggish earnings, lower labor participation means less tax revenue and other costs to society for unused and underutilized human resources.


“We’re seven years into the recovery and labor participation is bottom-bouncing at a 38-year low — and it’s not showing signs of turning up,” he said.

Thursday’s report did provide a reassuring sign that the economy, which began its recovery from the Great Recession in mid-2009, still has some legs.

Hiring in the U.S. has bounced back from an awful winter quarter, and it looks strong amid rising global turmoil.

U.S. exports already have been hurt by weakness abroad, with risks increasing recently because of the chaos in Greece and slowing growth in China.

Job growth in June matched the average of the prior two months and was broadly based.

Business and professional services, retail, healthcare and finance industries all added a healthy batch of new jobs, while construction, manufacturing and government were essentially flat.

But that otherwise bright news was eclipsed by the disappointing wage and labor-force data.

Average hourly earnings in June remained flat at $24.95 for all private-sector workers. That was in part because average manufacturing pay fell by a nickel to $25.08, while hourly earnings of service workers rose by just a penny to $24.69.

For all workers, hourly wages were up just 2% in June from a year ago, about the same sluggish pace at which it has been growing over the last several years.

President Obama, in a speech Thursday in Wisconsin, acknowledged that workers’ pay has been a disappointment.

While noting that the private sector has now added jobs for a record 64 straight months, he said, “We’ve got to get folks’ wages and incomes to keep going up. We’ve got to make sure their hard work is getting them somewhere.”

Economists said that the latest employment statistics suggest most employers aren’t in any hurry to bump up pay, despite reported pockets of shortages for technical workers in areas such as San Francisco.

Harry Holzer, a professor at Georgetown University, said companies are getting their needs met without feeling pressure to raise wages. “Employers simply aren’t desperate for bodies,” he said.

The lack of significant wage growth is one factor in the low labor participation rate and last month’s drop in the unemployment rate.

Most analysts had predicted that the June jobless figure would dip a notch to 5.4%, but it fell more sharply as the labor force declined by a whopping 432,000 last month after an increase of similar magnitude in May, the Labor Department said.

While the labor force data are volatile from month to month, there has been persistent weakness in the participation rate of workers.

With more women joining the job market and the growth in the economy, the share of the working-age population in the U.S. labor force rose steadily from about 60% in the late 1960s to a peak of 67.3% in early 2000. But that share fell dramatically in recent years and is now down to 62.6%.

Economists know that many workers left the labor force during the recession and slow recovery. Some were laid off and haven’t found work since. Others are working in the informal economy and aren’t counted by statisticians. And there are many in recent years who have joined the ranks of those on disability and in early retirement.

Gordon Breault of Columbus, Ohio, has been actively searching for work since he was laid off last August from his technology consulting job.

The 60-year-old father of two girls was in the office of Career Transition Institute on Thursday and said he was pressing on with his job hunt. But he said some of his acquaintances at the volunteer job-search office had taken early retirement.

“It’s not going to be the retirement they wanted,” he said, “but they don’t want to get back in the rat race.”

Experts don’t know how many workers who left the job market in recent years will come out of the woodwork. Thursday’s jobs report showed there were about 6.5 million people who were not in the labor force but wanted a job now. That’s about 1 million to 1.5 million more than the average before the Great Recession, said Sophia Koropeckyj, a labor economist at Moody’s Analytics.

The overall return rate may be low because many of them tend to have less education and be older, she said. What’s more, the longer one has been out of the labor force, the harder it is to get employed again.

Just how many of those workers want to return, or may be drawn back, is significant because they would add to the pool of workers available -- a key factor in determining the unemployment rate and wage trends.

Janet L. Yellen, the Fed’s leader, has said there is more slack, or available workers in the wings who want jobs or more hours, than the unemployment figure would suggest. And that, policymakers said, is a major consideration for the central bank as officials consider raising interest rates. Many analysts think the Fed will make its first rate hike in nearly a decade this September.

“If employers are able to hire without raising rates, that suggests slack,” said Tara Sinclair, an economist at George Washington University. Even so, as job growth continues and the unemployment rate trends down in the coming months, Sinclair said, employers will soon have to either lift wages or simply operate without hiring.

“They’re going to have to make a choice,” she said.