US job growth slows while unemployment rate falls
US employment growth slowed more than expected in June, and employment gains for the previous two months were revised lower; This signaled a chill in the labor market and led financial markets to dial back expectations for a near-term interest rate hike by the Federal Reserve.
While the Labor Department’s closely watched employment report on Thursday showed the unemployment rate fell to 4.2 percent last month, that was because nearly 720,000 people left the workforce, dropping the participation rate to its lowest level in more than five years.
Some economists said the slowdown in job growth was likely a delayed response to the Middle East war.
“Policymakers at the Fed haven’t released their response functions, but they’re clearly not going to like this jobs report,” said Christopher Rupkey, chief economist at FWDBONDS.
“It’s hard to keep track of which way the pendulum has swung in the labor market, as the strong employment picture just a month ago has suddenly weakened, perhaps due to the delayed response to the war in the Middle East.”
The Labor Department’s Bureau of Labor Statistics said nonfarm payroll employment rose by 57,000 jobs last month, following a downwardly revised 129,000 increase in May.
Economists polled by Reuters had forecast payrolls would rise by 110,000 in May, following a previously reported increase of 172,000.
Estimates ranged from as low as 25,000 to as high as 200,000.
The April payroll count was revised from 31,000 jobs to 148,000.
The report was released a day early due to Friday’s public holiday, which marks the 250th anniversary of U.S. independence on Saturday.
The moderation brings payrolls into line with other labor market surveys, including small business hiring plans, which offer a less robust picture of the job market.
Investors have priced in much lower odds of the Fed raising rates this month, but they continue to see monetary policy tightening likely in September, with short-term interest rate futures contracts projecting a roughly 60 percent chance of an increase.
The drop in the unemployment rate was 4.3 percent in May, and the share of consumers who think jobs are “hard to get” was near a five-and-a-half-year high in June, according to a Conference Board survey released Tuesday.
Economists estimate that the economy must create between zero and 50,000 jobs per month to keep up with growth in the working-age population.
The so-called break-even rate has fallen due to crackdowns on immigrants, which reduce the workforce and keep the unemployment rate low.
The labor force participation rate fell to 61.5 percent last month, the lowest level since March 2021.
Professional and business services led the job gains, with 36,000 positions added last month.
Benefits employment increased by 25,000, while healthcare payrolls increased by 22,000; this was below last year’s average monthly increase of 38,000.
Leisure and hospitality employment fell by 61,000 despite hopes the World Cup tournament would boost hiring.
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