Nonfarm Payrolls for June indicated that the US economy remained strong. The report exceeded expectations with the unemployment rate dropping.
However, weaknesses in the private sector and labor force participation raised concerns over the economy’s long-term health. The mixed signals from the labor market report could suggest that the Federal Reserve could delay its expected July cut.
Breaking Down the Report
The Bureau of Labor Statistics reports that the economy added 147,000 jobs in June, slightly above May’s 144,000. The unemployment rate declined to 4.1%, which was less than the anticipated number of 4.3%. Average hourly earnings came up short at 0.2% MoM, signaling limited wage driven inflation. ⁽¹⁾
Despite the strong headlines, the report showed some weaknesses. The private sector added 74,000 jobs, its weakest figure since October 2024. Meanwhile labor force participation dropped to 62.3%, the lowest since late 2022. ⁽²⁾
Sector Gains
Government employment posted a large gain, leading all categories with an increase of 73,000 due to solid boosts in state and local hiring, particularly in education-related jobs, which rose by 40,000. The Federal government, which is still feeling the impact of cuts from Elon Musk’s Department of Government Efficiency, lost 7,000. ⁽³⁾
In addition, health care was strong once again, adding roughly 39,000, while social assistance contributed about 19,000. Construction saw an increase of 15,000 jobs. ⁽⁴⁾
Federal Reserve’s Cautious Stance
The strong jobs data now reduces pressure on the Fed to cut interest rates at its July meeting. Financial markets have lowered their expectations for a July cut from 23% previously to now just 4.7%, according to the CME Fed Watchtool. ⁽⁵⁾
Instead, markets are now pricing in September as the earliest rate reduction, with only 2 rate cuts expected for 2025. Fed Chair Powell is moving cautiously on rates, stating the economy’s resilience and the need to monitor inflationary pressures, especially from President Trump’s tariff policies. ⁽⁶⁾
Market Reaction
Stocks rose following the report while Treasury yields increased alongside the US Dollar ahead of the Independence Day holiday in the US. President Trump has criticized the Fed Chairman, demanding lower interest rates and calling for Powell’s resignation. While tariff effects have had little impact on inflation, Fed officials remain cautious. ⁽⁷⁾
