U.S. employers slowed their hiring last month and the unemployment rate ticked down to 4.2% as participation in the labor force dropped to the lowest in more than five years, according to data released Thursday by the Labor Department.
The U.S. economy added 57,000 jobs in June, falling well short of economists’ expectations that payrolls had grown by 110,000 jobs. The disappointing total broke a three-month streak of gains that topped economists’ expectations and had offered hope that the labor market was breaking out of a low-hire, low-fire pattern that depressed job growth totals last year.
The Labor Department data included downward revisions to the prior two months’ gains, reducing the previous totals for April and May by a combined 74,000 jobs. The labor force participation rate fell three-tenths of a percentage point to 61.5%, the lowest since March 2021, as 720,000 people dropped out of the job market. The labor force participation rate for so-called prime-age workers — that is, those between the ages of 25 and 54 — dropped from 83.9% to 83.3%, which economists say could just be a statistical quirk but is worth watching. And the employment-to-population ratio fell to 59%, also a low dating back to 2021.
“The participation drop reflects the immigration slowdown,” Chris Low, chief economist at FHN Financial, told Reuters.
‘An obvious disappointment’: The latest numbers suggest that the labor market faces some lingering turbulence.
“June’s employment report was an obvious disappointment, though the report should not sway anyone’s overarching views on the economic outlook,” Neil Dutta, the head of economics at Renaissance Macro Research, said in a note cited by Bloomberg. “The main story here is of a labor market that reflects the broader economy. Economic growth is uneven and thus, the labor market is too.”
A decent trend: Still, many economists see continued resilience and underlying strength in the job market. Employment gains for April, May and June averaged 111,000 a month, far stronger than the 34,000 average for the same months a year ago. The U.S. economy added just 181,000 jobs in total last year.
“The June jobs report wasn’t quite as peppy as the prior three reports, but it still points to overall general health in the labor market,” J.P. Morgan economist Michael Feroli wrote in a note to clients. “Before today’s revisions, the nonfarm job growth figures over the March-May period stood out among other job data as exceptionally strong, and so we see today’s modest setback as merely a normalization back to a still-decent trend.”
Growth was strongest in the healthcare sector (up 47,000), professional and business services (up 36,000) and private education (up 22,000). It was weakest in the information sector, which lost 9,000 jobs and has reportedly seen payrolls fall for 17 of the last 18 months. Retailers also cut 7,500 jobs.
Easing Federal Reserve fears: “For the Fed, today’s report should allay any concerns that a reacceleration in the labor market is a source of upside inflation risks,” Feroli wrote. That may reduce pressure on the Fed to consider a near-term hike in interest rates. Market odds that the Fed would hold rates steady in July rose from 71% yesterday to better than 82% today, according to the CME FedWatch tool, while odds of a September hike edged lower.
“Today’s data hit the sweet spot for markets — strong enough to keep worries about growth at bay, but soft enough to reduce the probability of a rate hike,” Eric Winograd, chief U.S. economist at asset management firm AB Global, told the Associated Press.
No World Cup boost? Economist said there was still no sign of an expected job boost from the soccer World Cup, which kicked off last month. But payrolls in the leisure and hospitality sector fell by 61,000, the biggest such drop since 2020, “reflecting weaker than usual seasonal hiring,” the Bureau of Labor Statistics said. Payrolls at restaurants and bars fell by nearly 33,000, while jobs at hotels and motels fell by almost 22,000.
Chad Moutray, chief economist at the National Restaurant Association, told the Associated Press that the companies his group represents are seeing a “K-shaped” economy, in which there is a divide between higher- and lower-income households.
“We continue to hear that a lot of Americans are struggling to make ends meet,” Moutray told the AP. “If you’re catering to the upper-end of the K, you’re doing fine. If you’re catering to the lower part of the K, you’re seeing some challenges in the last couple of months.”
Inflation still wiping out wage gains: Average hourly earnings grew 3.5% in the 12 months through June, up from 3.4% as of May. But the Consumer Price Index rose at a 4.2% annual rate as of May, meaning that inflation has been outpacing the increase in workers’ earnings.
The bottom line: The U.S. unemployment rate has been at or below 4.5% since October 2021, but the job market is encountering some bumps as it continues to chug along — and American consumers still don’t feel great about the economy as their paychecks struggle to keep pace with inflation.