The US labor market added 147,000 jobs in June, beating economists' predictions of 106,000. This upbeat jobs report also saw the unemployment rate unexpectedly decline to 4.1%, further boosting market confidence in the strength of the US economy. This data comes after a revised May report showing the economy added 144,000 jobs, with the unemployment rate holding steady at 4.2%.
While concerns about slowing job growth remain, the June numbers suggest that the labor market is holding up better than anticipated, with job gains spread across various sectors, particularly in government employment. The report has led to a shift in market expectations regarding the Federal Reserve’s upcoming interest rate decisions.
Job Growth and Unemployment Rate
The US economy added 147,000 nonfarm payrolls in June, exceeding forecasts and showing that the labor market remains resilient despite ongoing economic challenges. The unemployment rate unexpectedly fell to 4.1%, marking a continuation of the trend from May, when job gains were revised higher to 144,000 from an initial estimate of 139,000.
The rise in employment was largely driven by government jobs, which increased by 73,000. Public sector employment accounted for roughly half of the overall job gains in June. Despite this positive news, concerns remain about the slower pace of growth in private sector employment, as private employers shed 33,000 jobs in June, marking the first month of private sector job losses since March 2023.
Wage Growth and Labor Force Participation
Average hourly earnings increased by 0.2% month-over-month and 3.7% year-over-year. While these gains were positive, they came in slightly below economists’ expectations, who had forecasted a 0.3% rise month-over-month and 3.8% year-over-year. The growth in wages suggests that while the labor market is still adding jobs, the pace of wage inflation may be starting to moderate.
The labor force participation rate, however, saw a slight decline, dropping from 62.4% in May to 62.3% in June. This small decrease reflects a broader trend of slower labor force growth, which could signal potential challenges in the long-term health of the labor market.
Market Reactions and Fed Rate Cut Expectations
The stronger-than-expected June jobs report has led to a significant shift in market expectations regarding Federal Reserve policy. Following the release, traders reduced their bets on a July interest rate cut, with the odds of a cut now standing at just 5%, down from a 24% chance the day before. Additionally, expectations for a rate cut at the Fed’s September meeting have also been scaled back, with markets now pricing in a 78% chance of a cut by the end of September, down from a 94% chance earlier in the week.
Economists and analysts are interpreting the report as a sign that the Fed may not move forward with an immediate rate cut, especially with the labor market showing resilience. Wells Fargo senior economist Sarah House stated that the data suggests a July rate cut is now "quite unlikely," signaling that the Fed may continue to take a cautious approach as it weighs other economic factors.
Challenges Continue in the Labor Market
Despite the positive headlines, there are signs of cooling in the broader labor market. Data from ADP showed that private employers cut 33,000 jobs in June, the first such decline since March 2023. Additionally, continuing unemployment claims reached their highest level in nearly four years, indicating that some workers are facing prolonged joblessness. These figures reflect the growing caution among employers, as the economic environment remains uncertain.
The Job Openings and Labor Turnover Survey (JOLTS) data for May, however, showed that job openings were still at their highest level since November 2024, with hiring and quits rates remaining near decade lows. While this suggests that the labor market is not experiencing a broad slowdown, it points to a more cautious and selective approach to hiring moving forward.
Looking Ahead
Looking ahead, investors and economists will be keeping a close eye on the next set of economic data, particularly the July jobs report and any signals from the Federal Reserve about future interest rate decisions. With the June report showing strength in the labor market, the chances of a rate cut in July have diminished, but expectations for September remain high, contingent on how the economy performs in the coming months.
The potential risks for the second half of 2025 include the continued slowdown in private sector hiring and the overall cooling of the labor market. While the drop in unemployment to 4.1% is a positive sign, it may reflect a smaller, more selective workforce rather than a truly robust labor market. The Federal Reserve’s ability to manage inflation while supporting economic growth will be a key factor in shaping the outlook for the remainder of the year.
