The U.S. job market sits at a crossroads six years into a fitful economic expansion: Hiring is strong, but weak wage growth has failed to pull millions of would-be workers off the sidelines while prompting others to drop out of the labor force.
Employers expanded payrolls by a seasonally adjusted 223,000 positions in June, marking 57 straight months of job creation, and the unemployment rate fell to 5.3%, the lowest level since April 2008, the Labor Department said Thursday.
The improvement broadly confirmed the Federal Reserve's narrative about how the U.S. economic expansion is unfolding in 2015, keeping the central bank on track to raise short-term interest rates later this year as long as international turmoil like the Greek debt crisis abates.
The job gains, indicative of a general upswing from a weak first quarter, were negatively colored by stagnant wage growth and a declining number of Americans participating in the labor force. The number of Americans considered marginally attached to the labor force--not actively looking but still available for work--stood at 1.9 million, little changed over a year that saw the creation of 2.9 million jobs.
"The labor markets just can't hit their stride," said Guy LeBas, an economist at Janney Capital Markets. "As has been the case with some many economic data points in the last few years, the headlines are decent, but most of the underlying details are deeply disappointing."
If the economic expansion is to accelerate into its seventh year, which started this month, employers need to boost wages to maintain the strong hiring pace and draw larger numbers of Americans back to the workplace.
Yet the flood of information on the June employment picture led to differing conclusions among economists on how the situation will play out.
The impressive streak of job creation and relatively low unemployment rate suggests labor-market slack is "vanishing rapidly," said J.P. Morgan Chase economist Michael Feroli. Diminished slack should lead to improved wages, which would support consumer spending and broader economic growth.
But the alternative scenario is that the pace of job creation slows as businesses become cautious in an economy hamstrung by global turmoil and a strong dollar. "The numbers show that employment in the U.S. may be peaking," said Tara Sinclair, chief economist at job search site Indeed. "If wages aren't growing and we can't get people back into the labor force, it won't be possible to keep adding 200,000 jobs each month."
Economists are vexed as to why more Americans aren't joining the workforce.
Thursday's report showed 432,000 Americans dropped out of the labor force last month. The labor-force participation rate declined to 62.6% in June from 62.9% in May, to reach its lowest level since 1977, a time when a larger share of women were still entering the workforce.
The dip in the participation rate comes with a caveat. The week when the government conducted the latest employment surveys occurred slightly earlier in the month than typical. Some economists noted that a smaller fraction of June's labor-force gains were captured in this year's survey compared with prior Junes, a month when new graduates typically cause the labor force to expand.
The current expansion has already lasted longer than the average recovery since World War II. And this month it will eclipse the length of the prior expansion at the start of this century.
Six years since the recession ended, the slow improvement has failed to deliver solid gains in an important measure of welfare: wages. Average hourly earnings of private-sector workers in June were unchanged from May at $24.95. From a year earlier, wages were up 2%, about in line with wage gains for much of the current expansion.
Many workers have seen little change at all for long stretches.
Lebert Lewin, 58 years old, said his pay as a caregiver for disabled children in Hartford, Conn., has been unchanged at $12.25 an hour for the past eight years. "We always hear there is no money in the budget" for raises, he said. "It makes it hard to make ends meet....But I love my clients so I keep going."
Business concerns about the cost of health care and other regulations are among several familiar reasons for why wage growth remains tepid and economic growth has been unable to accelerate much beyond a 2% annual pace during the expansion. In part due to weather, the economy in the first quarter of the year actually shrank.
Signs of increasing consumer demand are translating into higher hiring, a trend economists hope will pick up as the year progresses. Many are already pointing to robust car sales in recent months as one reason they are boosting their estimates for second-quarter economic growth.
Box maker Volk Packaging Corp. has hired 10 employees in recent months so that it could add a second shift at its plant in Biddeford, Maine, to meet demand created by steady growth in online shopping. "We crushed our sales record last year and are ahead of that pace this year," said company President Derek Volk.
But pay raises at his company have been small. A rapid increase in the cost of health insurance in recent years, he said, "limits the raises we can offer."
Complicating the outlook for U.S. businesses is a deepening crisis in Greece that is threatening to hamper growth in the rest of Europe and filter through to U.S. financial markets. The combination of easy-money policies by foreign central banks to stabilize their own economies and investors' relative confidence in the U.S. has caused the value of the dollar to surge over the past year. That makes American-made goods relatively more expensive abroad and has slowed manufacturing output.
Manufacturing jobs grew by just 4,000 last month. Construction and government employment--typically better-paying jobs--were unchanged. Job growth in June was instead concentrated in services. Retailers added 33,000 jobs to payrolls, the health-care sector added 40,000 and leisure and hospitality increased by 22,000.
Fed policy makers are now left to interpret mixed signals from the global economy ahead of any move to raise interest rates from near zero, where they've been since late 2008.
The unemployment rate has fallen into the range Fed officials project the measure to reach by year's end. That could encourage the Fed to lift interest rates this year, perhaps as early as September. But weak wage growth will do little to push up inflation, which has remained below the central bank's 2% target for three years.
The central bank will raise rates "when we have seen further improvement in the labor market and are reasonably confident that inflation will move back to 2%," Fed Vice Chairman Stanley Fischer said Tuesday.
Kate Davidson contributed to this article.
Write to Eric Morath at eric.morath@wsj.com
(END) Dow Jones Newswires
July 02, 2015 18:54 ET (22:54 GMT)
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