The U.S. economy saw a sharp slowdown in job creation heading into the summer, the Bureau of Labor Statistics reported Thursday.
Nonfarm payrolls rose by a seasonally adjusted 57,000 jobs in June from the previous month, but slower than the downwardly revised 129,000 increase in May and worse than the Dow Jones consensus estimate of 115,000.
However, the unemployment rate fell to 4.2%, slightly higher than 4.1% a year ago.
This decline was mainly due to a decline in the labor force participation rate, which fell by 0.3 points to 61.5%, the lowest level since March 2021. Household employment fell sharply during the month, with 507,000 fewer people working. The broader unemployment rate, which includes discouraged workers and those in part-time work for financial reasons, fell 0.2 percentage points to 7.9%.
There have also been significant downward revisions in previous months, with May’s total falling by 43,000 jobs, which was much stronger than economists expected, but April’s figure fell by 31,000 jobs to 148,000 as the report showed labor market growth was much slower than previously thought.
Average hourly wages increased 0.3% from the previous month and 3.5% from the previous year, both in line with consensus forecasts.
Professional and business services contributed the most with an increase of 36,000 jobs. Social assistance rose by 25,000 jobs, and health-care employment rose by 22,000, but at a slower pace than usual for the industry. Government employment increased by 8,000 people.
However, the leisure and hospitality industry reported 61,000 jobs lost, which the BLS said reflected slower-than-usual seasonal hiring. There was speculation that the World Cup would provide some boost to payroll figures, with Goldman Sachs expecting an increase of 40,000.
Most other categories showed little change.
Stock market futures rose on the news as traders tempered expectations for a rate hike as early as September. U.S. Treasury yields turned negative, with the policy-sensitive two-year bond yield dropping 3.5 basis points to 4.13%.
“The slowdown in employment growth casts doubt on the narrative of renewed strength in the labor market that has been building in recent months, but importantly supports the view that the Federal Reserve is under little pressure to tighten policy,” said Seema Shah, chief global strategist at Principal Asset Management.
In the report, Federal Reserve policymakers expressed mixed feelings about the economy, easing earlier concerns about labor market weakness and saying they were generally positive about growth, although they expressed concerns about inflation. But Thursday’s weak report could change the outlook on the labor market.
In an appearance Wednesday, Federal Reserve Chairman Kevin Warsh continued to emphasize the importance of bringing inflation down to the central bank’s 2% target and said the employment situation is “stable.” Inflation has been above that target for the past five years, with recent inflation driven in part by the impact of the Iran war and continued tariffs.
“These numbers are fine for the Fed,” Jefferies senior economist Thomas Simmons said in a note. “The pace of job growth is strong enough to keep unemployment stable, and average hourly wages are solid but not accelerating. There is no obligation on their part to do anything immediately on interest rates. The slowing pace of job growth suggests it is highly unlikely that a rate hike will be necessary this year.”
Markets expect the Fed to keep policy unchanged through the summer. Traders took the possibility of a September rate hike off the table after the jobs report, but futures still point to an October rate hike, according to CME Group FedWatch indicators.
But Warsh has avoided any kind of “forward guidance” on the direction of interest rates, and has repeatedly said during his short term in office that he is not committed to any policy path.
In other employment news on Thursday, new jobless claims for the week ending June 27 fell slightly to a seasonally adjusted 215,000, down 1,000 from the previous week and below expectations of 220,000.
Correction: The unemployment rate in May was 4.3%. A previous version mischaracterized recent trends.
