U.S. Job Gains Seen Strengthening After Two Disappointing Months

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The government's upcoming June jobs report will signal whether U.S. employers had greater success filling a record number of vacancies after two disappointing months of hiring.

A 711,000 increase in payrolls is forecast for the month, based on the median estimate in a Bloomberg survey of economists. While that would be the strongest advance since March, caution is warranted as projections for both April and May were well above the actual figure.

While the U.S. has recovered about 14.7 million of the jobs lost during the pandemic, payrolls remain more than 7.5 million short of the pre-pandemic level. Because a full recovery in the labor market has a long way to go, Federal Reserve policy makers are maintaining ultra-easy monetary policy.

In a congressional hearing last week, Fed Chair Jerome Powell said that the very quick job gains of the early recovery are over and finding work now is “more labor intensive and time consuming.”

The following charts characterize the state of the job market going into Friday's report from the Labor Department:

Labor force participation -- the number of Americans either working or looking for a job -- has been depressed at a historically low level since August.

A number of factors including enhanced unemployment benefits, ongoing child care responsibilities and health concerns are probably keeping people from returning to the workforce in the immediate term. Retirement rates also increased during the pandemic, which could imply that participation remains below pre-pandemic levels for some time.

Any uptick in the rate would be a be a welcome sign of a strengthening labor market.

Slower-than-expected employment growth in recent months isn't a result of lacking demand. Job openings are at a record high, and employers across industries have said that finding qualified workers is difficult.

More than half of U.S. states have announced plans to end enhanced federal unemployment programs before they officially expire in September, which could have led to more people looking for work and being hired in June.

While the leisure and hospitality industry has experienced some of the most meaningful job gains in recent months, it also has the most ground to make up.

States including California and New York lifted all pandemic-related restrictions in June, which may have allowed for more hiring at restaurants, bars and entertainment venues in the month.

Friday's report could also reflect shifts in demand as the economy reopens. In May, for example, employment at grocery stores decreased for a third month as more people returned to dining out rather than cooking at home.

Many businesses -- including large employers such as McDonald's Corp., Amazon.com Inc. and Bank of America Corp.-- have raised wages in recent months to attract workers to a surplus of open positions.

As of May, wage growth on a three-month annualized basis in seven of nine sectors had exceed the overall U.S. hourly pay gain. An upward surprise in June worker-pay growth could add more fuel to the ongoing debate about whether recent inflationary pressures are transitory -- or will prove to be persistent.