• The increase in nonfarm payrolls for June was 206,000, which is higher than the Dow Jones estimate of 200,000 but less than May’s downwardly revised 218,000 gain.
  • Unexpectedly, the unemployment rate climbed to 4,1%. This is tied with October 2021 for its highest level.
  • The average hourly earnings for the month increased by 0.3% and were up 3.9% compared to a year earlier, both of which are in line with expectations.

Labor Department reported Friday that the U.S. economy added slightly more than expected jobs in June, despite the fact that the unemployment rate rose.

Nonfarm payrolls rose by 206,000 in the month of May, a higher number than the Dow Jones forecast of 200,000, but less than the upwardly revised gain for May of 218,000, which was reduced sharply from an initial estimate of 272,000.

Unexpectedly, the unemployment rate climbed to 4,1%. This is tied with October 2021 as the highest since that date. It’s a contradictory sign for Federal Reserve officials who are weighing up their next move in monetary policy. Forecasts had predicted that the unemployment rate would remain at 4%.

Jan Hatzius said, “It is a report that suggests a soft landing,” on CNBC’s ” Squawk on The Street.” This does support the notion that [the Fed] may cut rates relatively soon. We continue to believe September is most likely.

The rise in unemployment was accompanied by a rise in the labor force participation, which measures the number of people working age who are either employed or actively looking for work. This rate rose 0.1 percentage points to 62.6%. The prime age rate (which focuses on people between the ages of 25 and 54) rose to 83.7%. This is its highest level in over 22 years.

The broader unemployment rate, which includes discouraged workers as well as those who hold part-time work for economic reasons, remained at 7.4%. The household employment rate used to calculate unemployment increased by 116,000. The household survey showed that full-time employees decreased by 28,000 and part-time employees increased by 50,000.

Although June’s job growth exceeded expectations, this was largely due to an increase of 70,000 government jobs. Health care, which has been a leader in job creation for years, saw a 49,000 increase, while social assistance added 34,000 jobs, and construction grew by 27,000.

Retail (-9,000) and professional and business service (-17.000), were two of the sectors that saw a decline.

In terms of wages, the average hourly wage increased by 0.3% in a month, and 3.9% compared to a year earlier, both according to estimates. The average week was unchanged at 34.3.

Stock Market Futures climbed higher after the report, while Treasury yields fell. The traders also increased their wagers that the Fed will implement its first interest rate reduction in September.

David Russell, Global Head of Market Strategy at TradeStation, said: “The job market has a slight bend without breaking yet, which supports the argument for rate reductions.” The market is not too hot or too cold. Goldilocks has arrived and September is the month to watch for a Fed rate reduction.

The Bureau of Labor Statistics, in addition to the significant revision of the May payroll count, has lowered the April estimate to 108,000. This is a drop of 57,000 from its previous estimate. The revisions combined have reduced the April and may totals by 111,000.

The number of long-term unemployed increased sharply in the last month. It rose by 166,000, to 1.5 million. This is a dramatic increase from 1.1 million one year ago. BLS reported that the percentage of long-term jobless as a proportion of total unemployment was 22.2% compared to 18.8% one year ago.

Black unemployment rates have risen to 6.3% – the highest level since March. The Asian rate jumped by a full percentage to 4,1%, the highest level since August 2021.

Federal Reserve officials are pondering next steps in monetary policy as they read the report.

According to the minutes of their meeting earlier this week , policymakers said they needed to see further progress on inflation in order to lower interest rates. They also noted that a robust economy, and a particularly solid labor market, lessened the urgency to take action any time soon.

Markets are estimating two rate cuts before 2024, assuming a quarter percentage point decrease. Fed officials only penciled in one rate cut at their June meeting, saying that they needed to see more “favorable data” before moving ahead with reductions.

Robert Frick is the corporate economist for Navy Federal Credit Union. He said that there are no cracks in the system which would prompt the Fed to cut rates. The labor market also continues to show signs of a slowing inflation. “That should result in one or two rate cuts this year.”

The Fed’s key lending rate is set at 5.25%-5.50 percent, its highest level in 23 years. It has been there for a little over a year.

Recent surveys of purchasing managers show a contraction in hiring in both the manufacturing and service sectors.

The broader economy is also slowing down. According to the Atlanta Fed, the gross domestic product grew at a pace of just 1.5% in the second quarter.

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