US Hiring and Wage Growth Decelerate in June as Unemployment Rate Climbs

US hiring and wage growth decelerated in June, while the unemployment rate climbed to its highest point since late 2021. This increase raises the likelihood that the Federal Reserve will start cutting interest rates in the coming months.

Job Growth and Unemployment Rate

Nonfarm payrolls rose by 206,000 in June, while job growth in the previous two months was revised down by 111,000, according to the Bureau of Labor Statistics report on Friday. The median forecast in a Bloomberg survey of economists had predicted a 190,000 increase. The jobless rate increased to 4.1% as more individuals entered the labor force, and average hourly earnings slowed.

June’s job growth beat expectations, but rising unemployment and slower earnings raise concerns about economic stability, according to Barron’s Print Edition.

Cooling Labor Market

Average employment growth over the last three months decelerated to the lowest level since early 2021, indicating a labor market that cooled more in the second quarter than previously estimated. This data aligns with other reports showing a significant drop in job openings this year and an increasing number of people applying for unemployment benefits.

Federal Reserve Outlook

A sustained reduction in hiring, coupled with a recent moderation in inflation, strengthens the expectation that Fed policymakers will lower interest rates as early as September. The jobs report is the last one before Fed officials meet later this month.

“The downward revisions to the previous two months combined with the rise in the unemployment rate are the significant data points. Wage growth also is slowing,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “All of that adds up to a slower trend.”

Market Reactions

Treasury yields fell, and the S&P 500 opened little changed following the report. Investors currently anticipate the Fed will reduce rates twice this year, according to futures.

The figures may alter the Fed’s view of the balance of risks as unemployment rises amid moderating inflation. Minutes from the central bank’s June meeting showed increasing concern that a further economic slowdown will lead to a higher jobless rate.

Economists Predict Decline in Weekly Jobless Claims

Economists surveyed by FactSet are forecasting that 235,500 initial unemployment applications were submitted for the week ending June 15…

Labor Force Participation

The participation rate — the percentage of the population that is working or looking for work — increased to 62.6%. The rate for workers aged 25-54, also known as prime-age workers, rose to a 22-year high of 83.7%.

Sector-Specific Job Gains and Losses

In June, approximately three-fourths of the job gains were in health care and government. One worrying sign was the steepest decline in temporary-help employment in more than three years. Manufacturing payrolls decreased by the most since February.

Wage Growth Trends

Wage growth continued to decelerate. Average hourly earnings rose 3.9% in June from a year ago, matching the smallest annual increase in three years. Wages for production and nonsupervisory employees, who make up the majority of workers, increased by 4%.

Political Implications

The latest figures are unlikely to bolster President Joe Biden’s position, as he faces mounting pressure from a growing number of Democrats to step down from his re-election campaign. This comes in the wake of his heated and contentious debate with former President Donald Trump, which has only intensified the calls for him to reconsider his candidacy.

Government Perspective

“People are coming to the labor market looking for jobs,” Julie Su, acting Labor Secretary, said on Bloomberg Television. “It is taking them longer to find them but we are seeing a balance between supply and demand when it comes to workers looking for jobs and employers finding what they want.”

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