Employment Growth Moderates in June, Softening Previously Robust Labor Market

Highlights

• Total nonfarm payroll employment increased by 209,000 in June.
• Unemployment rate remained steady at 3.6 percent.
• Average Hourly Earnings rose 0.4%, higher than 0.3% forecast.

Overview

Employment growth in the United States showed signs of easing in June, indicating a slowdown in the previously robust labor market. According to the Labor Department’s report, nonfarm payrolls increased by 209,000 jobs, falling short of the expected 240,000. Although still solid historically, this marked a considerable drop from May’s revised total of 306,000, making it the slowest month for job creation since December 2020. The unemployment rate was 3.6%, , lower than the previously reported 3.7%, but matching the forecast. Average Hourly Earnings were up 0.4% and the previous month was revised upward to 0.4%.

Various sectors experienced mixed performance in job gains. The government sector saw an increase of 60,000 jobs, while health care, social assistance, and construction also showed strong gains. However, the leisure and hospitality sector, previously a key driver of job growth, added only 21,000 jobs, indicating a notable cooling-off trend. Conversely, the retail sector experienced job losses, while transportation and warehousing saw a decline in employment.

Market reactions were observed following the release of the report, with futures tied to the Dow Jones Industrial Average falling nearly 90 points. The data had implications for the Federal Reserve’s monetary policy decisions, as policymakers consider the strong job market and supply-demand imbalances as factors contributing to inflationary pressures. Although the labor market showed signs of easing, the Fed is expected to continue tightening its policy, as indicated by recent statements from officials.

The report also highlighted the labor force participation rate remaining steady at 62.6%, underscoring the ongoing gap between worker demand and supply. Additionally, the broader unemployment rate, which includes discouraged workers and part-time employees for economic reasons, rose to 6.9%, the highest level since August 2022.

Overall, while employment growth in June showed a moderation from previous months, it remains to be seen how the Federal Reserve will navigate future rate hikes as they monitor the evolving labor market dynamics and inflationary pressures.