Guest post by Ibrahiim Bayaan, FreightWaves’ Chief Economist.
Job growth rebounded nicely in June as the economy added 224,000 workers to payrolls during the month. The transportation and logistics sector was one of the many areas of strength in June, led by improved gains among parcel and trucking companies.
The Bureau of Labor Statistics (BLS) reported that the economy added 224,000 workers to payrolls in June. This exceeded consensus estimates of a 170,000 job gain and serves as an impressive rebound a marked slowdown from disappointing 72,000 gain in the previous month. The 12-month moving average improved to 171,000 in June after falling below 150,000 in each of the past two months.
As is typically the case, job growth in June was primarily driven by the service sector, which added 154,000 jobs during the month. Gains in professional services, education and health services led the way in the sector, contributing more than two-thirds of the job growth during the month. This helped mask some of the weakness elsewhere on the service side of the economy, including the fifth consecutive monthly decline in retail employment. On the goods side of the economy, construction employment led the way in June with 21,000 jobs added. Hiring in the manufacturing sector matched the largest gain of the year during the month, with payrolls rising by 17,000.
Despite the strength in hiring, the unemployment rate rose slightly to 3.7 percent in June. This was driven by an increase in the size of the labor force, which rose by more than 300,000 as the labor force participation rate inched up to 62.9 percent. Wage growth continued to climb at a muted pace, rising by 0.2 percent from May’s levels. As a result, year-over-year growth in wages held steady at 3.1 percent in June.
Transportation and logistics hiring rebounds, but employment within trucking declines
In addition to professional services, education and health services, the transportation and logistics sector was another source of strength in the June jobs report. Jobs in the sector rose by an impressive 23,900 jobs during the month, marking the strongest growth since January. Some of this gain was driven by a rebound in ground passenger and sightseeing transportation, which added 5,500 jobs in June after declining in the previous month. Freight transportation and warehousing also performed well during the month, though continued struggles in rail and water transportation employment contributed nearly nothing to the monthly gain. Parcel companies led the way among carriers during the month, adding 6,500 workers in June.
In the trucking industry, hiring proceeded at its fastest pace since January as the industry added 4,300 workers to payrolls in May. In addition, growth from the past two months was revised up by a combined 2,600 jobs, showing that the industry still has some positive momentum heading into the second half of the year. The trucking industry added an impressive 44,000 jobs in 2018, as rising demand and surging rates helped propel hiring throughout the year. The pace of hiring within trucking has clearly slowed since rates in the industry have begun to cool, but is still moving in a positive direction.
Behind the numbers
June results for the overall economy serve as a welcome sign of relief for the U.S. economy. After May’s disappointing job growth, other indicators of labor market health have also pointed towards weakness over the past few weeks, including underwhelming results from jobless claims and this week’s ADP employment results. As a result, many were beginning to wonder whether one of the more consistent support for the overall economy was beginning to falter. As a result, many analyst were thoroughly convinced that the Federal Reserve would act to stimulate the economy by cutting interest rates at its next meeting at the end of this month.
Given the strength in June hiring, May’s poor results now look more like a temporary fluctuation, which was likely driven by the surprise reversal on trade policy with China during the month. The labor market still remains generally healthy in the middle of the year, which bodes well for retail spending going forward. With that said, the pace of hiring has clearly downshifted in the economy this year, as the 12-month moving average has trended below 200,000 throughout most of the year. Wage growth has stalled around 3.0 to 3.25 percent all year, so a Fed rate cut is still fairly likely this year and could come at their next meeting at the end of July.
On the trucking side, the results in June were an encouraging sign for the industry given the pressures from a softer freight economy and falling rates. It is a good time to remember though that the BLS numbers aren’t a pure representation of the conditions for drivers in the industry. For one, the monthly truck transportation numbers included all jobs on the for-hire side of the industry, including things like management and administrative employment. In addition, BLS numbers are payroll employment figures, so smaller independents who do not operate on payrolls are not counted in the BLS results.
This is an important distinction to note, because it is likely these smaller independent drivers that are most affected by current industry conditions. Spot market rates have tumbled 20-30 percent year-over-year throughout 2019, and smaller carriers exposed to the spot market are less likely to be able to withstand the corresponding drop in revenue. As a result, the official figures are likely overstating the amount of job growth in the industry so far in 2019. Still, this morning’s report was good news for the industry, and paints a slightly better picture than what was previously thought.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.