U.S. Added 372,000 Jobs in June

The unemployment rate, at 3.6%, was near the half-century low reached before the pandemic hit in spring 2020.

Employers hired across industries, with government the only major category to shed jobs.

The labor market, in which demand for workers far outpaces unemployed people looking for work, has held up stronger than the rest of the economy, which is rapidly cooling.

Consumers are starting to pull back on spending partly because of inflation, which is running at a four-decade high. Home construction is slowing as the Federal Reserve attempts to pull down inflation through aggressive interest-rate hikes. Manufacturing production is declining as Americans are reluctant to buy big-ticket items and household goods.

Some economists think the U.S. is already in a recession. Others believe it is likely to slip into one in the next year. Gross domestic product fell at a 1.6% annual rate in the first quarter. A Federal Reserve Bank of Atlanta model closely watched on Wall Street estimates that economic output contracted again in the second quarter, at a 1.9% annual rate.

Many economists expect job growth will slow but say it isn’t clear whether companies will broadly cut jobs as economic output weakens, which is the typical recessionary dynamic. With too few workers for all the available jobs, companies have been reluctant to let go of the workers they have. Jobless claims, a proxy for layoffs, have ticked up in recent months but remain historically low.

Companies in certain industries that are vulnerable to interest-rate increases, such as technology and real estate, have announced layoffs. Some firms have implemented hiring freezes.

“You’re getting companies that are saying, ‘OK, let’s wait and see,’” said

Susan Sterne,

economist at Economic Analysis Associates. “The uncertainty is higher.”

Ms. Sterne said she thinks the economy is already in a recession. Even so, payrolls could still continue to grow, she said. Job gains in leisure and hospitality, as well as healthcare, could help drive overall employment higher as sectors such as construction, manufacturing and retail falter, Ms. Sterne said.

Employment in leisure and hospitality is well below prepandemic levels. Companies in the sector—which includes restaurants and hotels—are trying to find and keep workers after an acute labor shortage followed steep cutbacks at the beginning of the pandemic.

More workers are starting to apply for jobs at Lobster Place Inc., which includes a seafood counter, full-service seafood restaurant and sushi bar in Manhattan’s Chelsea Market. Still, hiring new candidates requires constant recruiting and follow-ups, said

Ian MacGregor,

the company’s chief executive. Retention is particularly challenging, he said, adding that many recent hires haven’t stayed on for 90 days before they quit or are let go.

Lobster Place has raised wages to attract and retain workers. For instance, a cook makes $23 an hour, up from about $17 to $20 before the pandemic. Higher pay and benefits—such as expanded paid time off and medical benefits—have done little to ease the staffing shortages, Mr. MacGregor said. The four-person executive team is often serving food and drinks, rather than planning a new restaurant, because the company has struggled to hire junior managers.

More customers are eager to dine at Lobster Place as New York City tourism picks up, he said. “And we would love to open a new restaurant, but our biggest friction point for that is labor,” Mr. MacGregor said.

Lobster Place now charges $23 for a lobster roll, up from $18.50 in January 2020. So far, customers have been willing to go along with higher menu prices. Mr. MacGregor said he is concerned about how long that tolerance will last.

“I just have to believe that the money that people have saved over the last two years is going to run out,” he said. “At some point customers will push back and say, ‘Look, I can’t pay $25 for a sandwich anymore, even in New York City.’”

Companies are raising wages as they compete for a limited pool of workers. That is helping draw some workers off the sidelines.

The labor-force participation rate, or the share of adults working or looking for work, ticked up to 62.3% in May from 62.2% a month earlier and was well above its trough of 60.2% in April 2020. Participation was still down from 63.4% in February 2020.

Many companies have cited a pickup in demand for their goods and services as a key reason for their labor needs. That demand is softening as inflation weighs on consumers, spurring many to shift spending habits.

When 32-year-old Jeffrey Miyamoto and his wife noticed how expensive it was to heat their home and dine out, they decided they needed to review their budget earlier this year.

The couple were surprised to see how much they were paying for streaming services and cut out Peacock, Amazon Prime and HBO Max. They only pay for Netflix now. They also stopped using food-delivery services such as DoorDash and Uber Eats, Mr. Miyamoto said.

Mr. Miyamoto, an investment analyst at an asset-management company, said he plans to take fewer international trips this year, including to parts of Asia, where he and his wife have family. “Our families are all far-flung around the world,” he said. “It’s been difficult to cut travel.”

The Woodbridge, Conn., resident has gone to the movie theater more than usual in recent months to see films including “Jurassic World: Dominion,” “Top Gun: Maverick” and “Death on the Nile.” Going to the movies, as well as hiking, camping and tennis, is cheaper than travel, he said.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com