U.S. payroll additions slowed noticeably in June, according to the Labor Department's closely watched employment report, even as the unemployment rate edged down to 4.2% from 4.3% in May. Nonfarm payrolls increased by 57,000 last month, following a downward revision to a 129,000 gain in May.
Economists surveyed by Reuters had expected payrolls to rise by 110,000 in June, after the initially reported 172,000 increase in May was revised. Forecasts for June in the run-up to the report ranged from as few as 25,000 to as many as 200,000. The softer print in June follows three consecutive months of relatively strong payroll gains.
Analysts said the moderation in payroll growth may represent an adjustment after unusually robust hiring earlier in the spring and could bring payrolls closer to readings from other labor market measures that have appeared less vigorous. In particular, small business hiring plans and other surveys have painted a more subdued picture of labor demand.
The employment report was released a day early because of a public holiday on Friday marking the United States' 250th anniversary of independence on Saturday. Prior to the release, financial markets had priced roughly a 50.7% chance that the Federal Reserve would raise interest rates at its September 15-16 meeting, based on the CME Group's FedWatch tool.
Policymakers at the U.S. central bank left the benchmark overnight interest rate in the 3.50%-3.75% range last month but signaled in updated quarterly projections that additional rate increases could occur this year. The June payrolls report will be weighed against those projections as investors and policymakers assess the path of monetary policy.
Economists estimate the labor market needs between zero and 50,000 jobs per month simply to keep pace with growth in the working-age population. That so-called break-even rate has declined, the report noted, in part because an immigration crackdown has reduced the size of the labor force and helped keep the unemployment rate from rising despite slower payroll gains.
One factor underlying the relative strength in payrolls has been a historically low level of layoffs, which has supported employment even as other indicators have not mirrored the same vigor. A Conference Board survey released this week showed the share of consumers who view jobs as "hard to get" was near a 5-1/2-year high in June, a signal that labor market sentiment is mixed.
Firms have been cautious about shedding workers amid a tight labor market that followed the COVID-19 pandemic, despite facing uncertainties from tariffs last year and more recently from the Middle East conflict. With the United States and Iran agreeing to a ceasefire, which has pushed oil prices back to pre-war levels, some economists in the market judged that downside risks to the labor market had eased and expected firmer job growth to reassert itself over the remainder of the year.
What this means
- Payroll growth cooled in June to 57,000 while the unemployment rate declined to 4.2%.
- May payrolls were revised down to a 129,000 increase from the prior 172,000 figure.
- Markets were pricing about a 50.7% chance of a Fed rate hike at the September meeting heading into the data release.