The June jobs report was a surprise - but not a good one. The U.S. added far fewer jobs than expected, yet the unemployment rate went down.
Behind the Numbers
The Bureau of Labor Statistics said nonfarm payrolls added just 57,000 jobs in June, after seasonal adjustment. That is less than half of the 115,000 that economists had forecast. Even May's number was revised lower, from an initial report to 129,000 - a cut of 43,000. April's job gain was also revised down by 31,000 to 148,000.
The unemployment rate fell from the previous month to 4.2%. But the reason is not that more people found jobs. The labor force participation rate dropped to 61.5%, the lowest since March 2021.
That means fewer people were either working or looking for work. In the household survey, the number of people reporting they were employed fell by 507,000.
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A broader measure of unemployment that includes discouraged workers and people working part-time for economic reasons came in at 7.9%, down 0.2 percentage point. Average hourly earnings rose 0.3% in June and 3.5% from a year ago.
Sectors Tell a Mixed Story
Job gains were concentrated in a few areas. Professional and business services added 36,000 jobs. Social assistance added 25,000.
Healthcare added 22,000. Government added 8,000.
The report said this was due to slower-than-normal seasonal hiring.
The weak report shifted expectations for the Federal Reserve. Market participants trimmed their expectations for a rate hike occurring as soon as September 2026. However, a potential increase in October remains possible based on futures markets tracked by CME Group's FedWatch gauge.
The yield on the policy-sensitive 2-year U.S. Treasury note fell to 4.13%, down 3.5 basis points.
Analysts weighed in. Principal Asset Management's chief global strategist, Seema Shah, commented: "The slowdown in payroll growth challenges the narrative of renewed labor market strength that has been building in recent months but, importantly, reinforces the view that the Federal Reserve is under little pressure to tighten policy." The jobs data was described as "steady" by Fed Chair Kevin Warsh. Jefferies senior economist Thomas Simons remarked: "For the Fed, this number is fine. The pace of job growth is plenty strong enough to maintain a steady unemployment rate and average hourly earnings are solid, but not accelerating. There is no imperative on their part to do anything with rates immediately, and the softening in the pace of job growth suggests that rate hikes are very unlikely to be necessary this year."
What to Watch
The number of initial jobless claims for the week ended June 27 was 215,000, down 1,000 from the prior week.
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