U.S. economy added 206,000 jobs in June, unemployment rate rises to 4.1%

 


The US labor market added more jobs than expected in June while the unemployment rate unexpectedly rose, reaching its highest level since November 2021 in another sign the job market continues to cool.

Data from the Bureau of Labor Statistics released Friday showed the US economy market added 206,000 nonfarm payroll jobs in June, more than the 190,000 expected by economists.


The unemployment rate rose to 4.1%, up from 4% in the month prior and the highest reading in almost three years. June's job additions were a slight decline from May, which saw job gains revised down on Friday to 218,000 from the 272,000 initially reported last month.

Here are the key numbers Wall Street was looking for compared to consensus estimates, according to data from Bloomberg:

  • Nonfarm payrolls: +206,000 vs. +190,00 expected

  • Unemployment rate: 4.1% vs. 4% expected

  • Average hourly earnings, month over month: +0.3% vs. +0.3% expected

  • Average hourly earnings, year over year: +3.9% vs. +3.9% expected

  • Average weekly hours worked: 34.3 vs. 34.3

The report also comes as the stock market traded to record highs this week amid a slew of softer-than-expected economic data, including readings on inflation that have the US pacing back toward a "disinflationary path," according to Federal Reserve Chair Jerome Powell.

Ahead of Friday's jobs report, investors were pricing in two interest rate cuts this year, with the first most likely to come in September.


According to the CME FedWatch Tool, investors are pricing in a nearly 75% chance the Fed cuts rates in September. Last month, Fed forecasts suggested one rate cut would likely be appropriate this year.

The big surge in worker pay in 2021 and 2022 is petering out.

The increase in wages in the 12 months ended in June slowed to 3.9% from 4.1%, marking the small gain since August 2021.

At one point, yearly wages were rising as fast as 5.9%. A shortage of labor encouraged millions of people to switch jobs and seek higher pay, especially so they could keep up with high inflation.

Yet with inflation slowing and businesses hiring fewer workers, people are not switching jobs as much or pushing for much higher pay.

This is good news to the Federal Reserve. The central bank viewed high wages as a potential source of inflation that could prevent it from getting prices under control. Labor is the single biggest cost for most businesses.

The Fed still wants to see wage growth slow to 3% or slightly less, similar to the annual increase just before the pandemic. Fed officials view wage growth of 3% as consistent with low inflation.

This year’s college grads have shown increased interest in working for the government. A quick look at today’s jobs report offers an easy explanation.

While industries like information, financial activities or professional and business services saw modest gains or even losses, the public sector added 70,000 jobs in June. That was the biggest gain of any sector last month.

Alongside healthcare and leisure and hospitality, the government has driven the bulk of job gains over the last year. Government alone accounted for 23% of all new jobs in the past 12 months.

That growth and stability might be uniquely appealing to young workers, particularly as companies in flashy industries like tech or finance have contracted or laid off employees over the last couple of years.


Temporary help services, a key indicator of overall job growth, is flashing red.

In June, the sector shed a net 48,900 jobs, the biggest decline since April 2021, said Thomas Simons, U.S. economist at Jeffries.

A drop in temporary help service jobs would normally signal an impending labor market correction, Simon said. But, in this case, it may not.

Since labor is so scarce, Simon sees this drop as a sign that workers can more easily find full-time employment and do not have to go to temp agencies for work.

While the 206,000 jobs created in June exceeded expectations, several factors were concerning, said Paul Ashworth, chief North America economist at Capital Economics.

He pointed out that the government as a source of many jobs, downward revisions to previous months' reports and a rise in unemployment were concerns.

The uptick in unemployment from 4.0% to 4.1% puts the economy "one step closer to triggering the Sahm rule," according to Ashworth. The Sahm rule uses increases in the unemployment rate to predict a recession.

Ashworth says that this is a "unique cycle in many respects" and the unemployment rate is being driven up by strong labor supply, not weak labor demand. Because of this, he cautions against relying too heavily on the Sahm rule.

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