U.S. job growth weakened more than expected in June, while payroll figures for the previous two months were revised lower.
The softer employment data pointed to a cooling labour market and led investors to reduce expectations for an immediate Federal Reserve interest-rate increase.
Unemployment Falls as Labour Force Shrinks
The unemployment rate declined to 4.2% in June from 4.3% in May, according to the Labor Department’s closely watched employment report.
However, the decline was largely caused by around 720,000 people leaving the labour force.
As a result, the labour force participation rate fell to 61.5%, its lowest level since March 2021.
Some economists suggested that slower hiring may partly reflect a delayed reaction to the conflict in the Middle East.
Nonfarm Payrolls Miss Expectations
U.S. nonfarm payrolls increased by just 57,000 jobs in June.
That was significantly below the 110,000 increase expected by economists surveyed by Reuters.
May’s payroll gain was revised down to 129,000 from the previously reported 172,000.
April’s figure was also lowered by 31,000 jobs to 148,000.
Economists’ forecasts for June had ranged from 25,000 to 200,000 new jobs.
Jobs Report Released Ahead of Holiday
The employment report was published one day earlier than usual because of the public holiday connected to the United States’ 250th anniversary of independence.
The weaker payroll figures brought the official data more closely in line with other labour market indicators.
Recent surveys of small businesses and hiring plans had already suggested that employment conditions were becoming less robust.
Fed Rate-Hike Expectations Decline
Financial markets reduced the probability of a Federal Reserve rate hike following the report.
Traders saw less than a 20% chance of an increase in July.
However, markets continued to view a September rate hike as possible. Interest-rate futures reflected a probability of around 60%, down from approximately 75% before the employment report.
The Federal Reserve kept its benchmark interest rate within a range of 3.50% to 3.75% at its previous meeting.
Updated projections nevertheless showed that policymakers expected borrowing costs to rise during the year.
Labour Market Sends Mixed Signals
The decline in unemployment contrasted with signs that finding work has become more difficult.
A Conference Board survey showed that the percentage of consumers describing jobs as hard to find climbed to its highest level in around five and a half years.
Christopher Rupkey, chief economist at FWDBONDS, said the latest report would likely concern Federal Reserve officials.
He added that labour market conditions had weakened suddenly after appearing considerably stronger only one month earlier.
Lower Immigration Reduces Job Growth Requirement
Economists estimate that the U.S. economy now needs to create between zero and 50,000 jobs per month to keep pace with growth in the working-age population.
This break-even level has declined because tighter immigration policies have reduced labour force growth.
A smaller labour force can help keep the unemployment rate low, even when the pace of hiring slows.
Low Layoffs Continue to Support Payrolls
Historically low layoffs remain an important source of support for the labour market.
Companies have remained reluctant to dismiss workers despite uncertainty caused by tariffs and the Middle East conflict.
Many businesses still remember the difficulty of recruiting employees following the COVID-19 pandemic.
Professional Services Lead Job Gains
Professional and business services recorded the largest employment increase in June, adding 36,000 jobs.
Social assistance employment rose by 25,000, while the healthcare sector added 22,000 positions.
However, healthcare hiring remained below its average monthly increase of 38,000 jobs over the previous year.
Leisure and Hospitality Jobs Decline
Employment in leisure and hospitality fell by 61,000 jobs.
The decline came despite expectations that the FIFA World Cup would support hiring in tourism, accommodation, restaurants and other related industries.
The June employment report therefore presented a mixed picture, with weaker payroll growth, declining workforce participation and fewer expectations for an immediate Federal Reserve rate hike.
