The U.S. job market has shown resilience over the past year, according to Wells Fargo analysts, even as investors anticipate the upcoming release of June’s nonfarm payrolls report on Friday.
In a recent note to clients, the analysts highlighted that the average monthly increase of 230,000 in nonfarm payrolls—a crucial indicator of labor demand—has defied expectations of a sharp slowdown following the Federal Reserve’s series of interest rate hikes.
They pointed out that a significant portion of these job gains has been concentrated in three sectors: healthcare, government, and leisure and hospitality. These industries, they noted, have either lagged in the broader post-COVID-19 labor market recovery or have been “more insulated” from the Fed’s tightening monetary policy.
“The continued hiring in these sectors has provided essential support for income growth and consumer spending,” the analysts explained.
They further added that they expect these three categories to continue contributing significantly to the monthly payroll increases, surpassing their pre-pandemic levels and helping to maintain overall job growth despite the current monetary policy pressures.
However, the Wells Fargo analysts cautioned that the boost from these industries might diminish as the gap between their recent hiring rates and pre-COVID levels narrows. This narrowing could be due to reduced scope for catch-up hiring, weaker financial positions, or slowing demand.
As a result, the analysts warned of an increasing likelihood of a more significant slowdown in payroll growth. They projected that nonfarm payroll gains might slow to around a 150,000 monthly pace over the next year, as contributions from these standout industries diminish and employers become less inclined to hire broadly.
