The U.S. economy added 206,000 jobs in June, surpassing the Dow Jones forecast of 200,000, according to the Labor Department’s report on Friday. However, the unemployment rate unexpectedly rose to 4.1%, the highest level since October 2021, challenging Federal Reserve officials as they consider future monetary policy adjustments. This rise contrasts with predictions that the jobless rate would remain at 4%.
The labor force participation rate, which reflects the percentage of working-age individuals employed or actively seeking employment, increased by 0.1 percentage points to 62.6%. The prime-age participation rate (ages 25-54) reached 83.7%, the highest in over 22 years. Despite these gains, the broader unemployment rate, accounting for discouraged workers and those in part-time positions for economic reasons, remained steady at 7.4%.
Job growth in June was bolstered by a 70,000 increase in government positions. The health care sector added 49,000 jobs, social assistance contributed 34,000, and construction saw a gain of 27,000. Conversely, professional and business services lost 17,000 jobs, and retail declined by 9,000. Average hourly earnings rose by 0.3% for the month and 3.9% year-over-year, aligning with expectations. The average workweek held steady at 34.3 hours.
Following the report, stock market futures increased slightly, while Treasury yields declined. Market traders heightened their expectations for the Federal Reserve to initiate interest rate cuts by September.
Revisions to previous months’ data showed a significant reduction, with May’s job gains revised down to 218,000 from 272,000 and April’s figures reduced by 57,000 to 108,000, resulting in a combined decrease of 111,000 jobs for those months. Long-term unemployment increased sharply, with 1.5 million people unemployed for more than six months, up from 1.1 million a year ago.
As the Federal Reserve assesses these mixed signals, officials have indicated the need for further progress on inflation before considering rate cuts, despite a robust labor market mitigating immediate action. Markets, however, are pricing in the possibility of two rate cuts by the end of 2024. The Fed’s key lending rate remains between 5.25%-5.50%, the highest in 23 years. Recent signs of slowing economic growth and contractions in hiring across manufacturing and services sectors add complexity to the economic outlook, with GDP growth tracking at 1.5% for the second quarter.
