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The U.S. labor market showed signs of cooling, with the unemployment rate rising in June and the pace of job growth in recent months being slower than previously reported.
The U.S. economy added 206,000 jobs last month, the Bureau of Labor Statistics said Friday. That beat the 190,000 roles economists polled by Reuters had forecast, but revisions to the April and May figures meant employment over the two months was 111,000 lower than originally reported.
Friday’s nonfarm payrolls report also showed the U.S. jobless rate rose to 4.1 percent from 4 percent, the highest level since November 2021. Economists had expected no change.
The resilience of the US labor market over the past two years has given the Federal Reserve time to take a cautious approach to reducing borrowing costs as it seeks to tame inflation. With price pressures easing, the central bank is keeping a close eye on employment conditions to help decide when to start a rate-cutting cycle.
The recently released minutes of the central bank’s June meeting showed that policymakers welcomed waning price pressures, but are becoming more alert to the risks of the US labor market falling and the possibility that it could turn from weak to strong rather quickly.
Several members of the Fed’s rate-setting committee emphasized during their meeting that “with the normalization of the labor market, further weakening of demand may now generate a greater response to unemployment than in the recent past, when lower labor demand was felt by relatively fewer jobs. opening”, according to the minutes.
“Numbers like this will raise eyebrows at the Fed and fuel a debate about whether rates are too restrictive and putting the expansion at risk,” Robert Tipp, head of global bonds and chief investment strategist at PGIM, said in a nonfarm payrolls report on Friday. .
Tipp said “what appeared to be a dull report” showed that several factors were contributing to a softening trend in the domestic labor market, which could facilitate a rate cut by the Fed later this year.
“Downward revisions from previous months, a high share of health care and government jobs, cuts in temporary workers and a weak household survey all point to a picture of moderation in the labor market,” he said.
The BLS revised May’s nonfarm payrolls number to 218,000 from 272,000 earlier, while April’s number was revised lower to 108,000 from 165,000. That meant employment for the two months was 111,000 lower than previously reported.
Average hourly earnings rose 3.9 percent in June from a year earlier, the BLS report showed, the slowest pace of growth in three years.
Data from earlier this week painted a somewhat mixed picture of the labor market. In signs of cooling, private employers added fewer jobs than expected in June and new weekly jobless claims rose. But demand for U.S. workers rose slightly in May, according to a better-than-expected jobs report.
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Treasury yields fell to their lowest level in months on Friday after the release of softer June wages data that traders bet the Fed could cut interest rates twice this year.
The yield on the two-year government bond, which is sensitive to expectations of monetary policy, fell 0.09 percentage point to a three-month low of 4.61 percent. Traders are pricing in about two interest rate cuts this year, with the first coming in November.
During morning trading in New York, the S&P 500 rose 0.3 percent.
Eric Winograd, chief fixed income economist at AllianceBernstein, said he didn’t think the latest jobs report changed the fundamental picture of the domestic economy.
“The report is weaker than expected due to downward revisions over the past two months. Now May and June are basically in line. But this is not a job market that is falling off a cliff.”