Despite a June Slowdown in Hiring, Job Market Still Seen as Solid

Key Takeaways

• The US economy added 57,000 jobs in June, according to the Bureau of Labor Statistics, well below consensus estimates.
• The unemployment rate ticked down to 4.2%, while the labor force participation rate remains at a five-year low.
• Economists say the Fed will stay on hold for now, but rate hikes remain possible later this year.

The US economy experienced slower job growth in June, but economists say the labor market remains resilient in the face of inflation. June’s slightly cooler labor print comes after three consecutive months of strong job additions.

The US economy added 57,000 jobs in June, according to the latest report from the Bureau of Labor Statistics. The unemployment rate ticked down to 4.2%. The report undershot expectations for job growth. The report had little impact on expectations that the Federal Reserve will raise rates this year, as inflation continues to paint a more worrisome picture.

Nonfarm payroll employment had been forecast to show an increase of 100,000, softer than the 172,000 initially reported in May, according to FactSet. That gain has since been revised down to 129,000. Meanwhile, the unemployment rate had been forecast to remain steady at 4.3%.

“This is still a solid but unspectacular labor market print, and the job market overall seems to be about in equilibrium without providing an inflationary impulse, but also, people who want to find a job mostly can do that,” says Natixis chief economist Christopher Hodge.

June Jobs Report Key Stats

• Total nonfarm payrolls rose by 57,000 after rising by 129,000 in May.
• The unemployment rate fell to 4.2% in June from 4.3% in May.
• In June, average hourly wages rose by 13 cents, or 0.3%, to $37.64.

Job creation numbers for the three-month average fell to 111,000 from May’s 164,000, reflecting an annualized growth rate of 0.8% for the three months ending in June.

The June report was “considerably cooler than in last month’s jobs report, which showed three-month job growth at 1.4% annualized,” says Morningstar senior US economist Preston Caldwell. “The slowdown is due to the weaker pace of growth in June as well as this month’s downward revisions to the May and April data.” He adds that all around, hiring remains “above water” in “white-collar categories” like finance, information, professional services, management, and administration, with an annualized job growth of 0.3% over the past three months.

The June report showed weakness overall relative to prior months. Leisure and hospitality hiring declined by 61,000 jobs, aligning with the consensus that this sector reached its seasonal hiring peak in May, according to Hodge. Government jobs also rose in May, but he says this trend likely won’t occur again for the rest of the year.

“We can probably attribute that to some seasonal factors and some one-off factors, like hiring for the World Cup,” Hodge says. “It’s more a matter of those sectors coming back down to earth, and this is a continuation of a trend if you exclude the outliers.” Meanwhile, he says private education and healthcare have continued to “dominate” the labor market since 2023. Still, healthcare has grown at a slower annual pace than the average monthly gain of 38,000.

Unemployment Rate Steady

The slight drop in the unemployment rate isn’t a sign of labor market strengthening, as few people have entered the labor force over the past five years, according to Hodge. Last month, the labor force participation rate fell to 61.5%.

“We have an improving unemployment rate down to 4.2%, but that’s also balanced by the fact that the labor force participation rate was the lowest it’s been since 2021,” Hodge says. “You’re certainly getting mixed signals. It’s a labor market that is essentially in equilibrium right now.”

Wage Growth Rises Slightly

Hourly wages rose by 0.30%, down from their 0.32% increase in May. “Wage growth is right in the sweet spot, where it’s coming down from very high levels we’ve seen over the previous two years,” Hodge says. He adds that wage growth isn’t collapsing and seems consistent with the target inflation rate: “Wage growth was a little bit higher than in the prior month, but this labor market is not providing any sort of inflationary pressure, and the wage gains we saw are right in the sweet spot.”

Fed Still Seen Raising Rates in 2026

June’s weaker-than-expected job numbers had little impact on the bond market’s expectations for Fed interest rate hikes. According to the CME FedWatch Tool, there is a 42.2% chance the central bank will raise rates by a quarter point from the current 3.50%-3.75% range at its December meeting. This is up slightly from yesterday’s readings. Meanwhile, expectations for further hikes have dropped a touch since the report, hinting that June’s labor data could be a key decision factor for the Fed.

However, some economists say the Fed will lean more on inflation data, such as the effect of the Iran war on consumer and energy prices, to gauge the health of the US economy. “Today’s figures will only incrementally shift the Fed’s thinking,” Caldwell says. “It’s clear the labor market is no longer weakening, but whether it is tightening, and to what extent, remains ambiguous. The Fed will wait for more data to get a clearer picture. Hence, we expect the Fed to hold rates unchanged in its July meeting, assuming that the Iran situation allows oil prices to remain subdued.”

Naxitis’ Hodge expects the Fed to hold rates steady throughout the year, supported by a potential easing of inflationary pressures. He thinks that if the economy remains on that course, the Fed likely won’t change its stance. “The same labor market dynamics in place when the Fed met for the June meeting still exist, so from the labor market perspective, this doesn’t really move the needle,” he says.