The U.S. labor market added more jobs than expected in June, while the unemployment rate unexpectedly rose to its highest level since November 2021, in another sign that the labor market continues to cool.
On Friday, data from the Bureau of Labor Statistics showed the U.S. economy added 206,000 nonfarm jobs in June, more than the 190,000 that economists had expected.
The unemployment rate rose to 4.1%, up from 4% the previous month and the highest reading in nearly three years. June’s job gains were a slight decline from May, when the job gain was revised up on Friday to 218,000 from the 272,000 initially reported last month. The aggregate revisions for April and May showed the U.S. economy added 111,000 fewer jobs than initially reported.
“The June jobs report showed more signs of a cooling labor market, with weaker-than-expected job growth including revisions, rising unemployment and slowing earnings growth,” Nancy Vanden Houten, chief U.S. economist at Oxford Economics, wrote in a note to clients.
The S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) rose after the report, after the market hit record highs earlier in the week amid a series of weaker-than-expected economic data, including inflation figures that suggested the U.S. is back on a “disinflationary path,” Federal Reserve Chairman Jerome Powell said.
Read more: How does the labor market affect inflation?
In preparation for Friday’s jobs report, investors were already pricing in two rate cuts this year, with the first likely to come in September.
According to the CME FedWatch Tool, investors are pricing in a nearly 75% chance that the Fed will cut rates in September. Last month, the Fed’s forecasts suggested that one rate cut this year would likely be appropriate.
For some, Friday’s report reinforces the need for rate cuts by the Federal Reserve in the near future.
“Today’s employment report should confirm expectations of a September rate cut,” Neil Dutta, head of economics at Renaissance Macro, wrote in a note to clients. “Cooling economic conditions are changing the trade-offs for the Fed … Powell should use July to set up a September rate cut.”
With jobless claims rising and the unemployment rate at its highest level in more than two years while inflation falls, economists say the Fed is walking an increasingly fine line by keeping interest rates at their highest levels in more than two decades.
“Given the cooling in the labor market over the past year, we expect further labor market weakening to become increasingly concerning and less welcome to the Fed,” Sarah House, senior economist at Wells Fargo, wrote in a note to clients on Tuesday.
Data released earlier this week also showed signs of a slowdown in the labor market.
On Wednesday, the ADP Research Institute’s national employment report showed that the private sector added 150,000 jobs in June, down from 157,000 jobs added in May.
Meanwhile, data from the Department of Labor showed that nearly 1.86 million continuing unemployment claims were filed in the week ended June 29, up from 1.83 million the previous week. It was the ninth straight week of increased continuing claims.
Elsewhere in Friday’s report, wage growth, a key measure of inflationary pressure, slowed to an annualized 3.9%. On a monthly basis, wages rose 0.3%, down from the previous month’s 0.4% gain.
Meanwhile, the labor participation rate rose to 62.6% from 62.5% in the previous month.
The biggest job gain in Friday’s report was in the government sector, which added 70,000 jobs in June. At the same time, the health care sector added 49,000 jobs, slower than the average monthly growth of 64,000 over the past 12 months.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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