While the U.S. labor market added more jobs than expected in June, the unemployment rate unexpectedly rose to its highest level since November 2021, another sign of the continuing cooling in the job market.
The U.S. economy added 206,000 nonfarm payroll jobs in June, beating economists’ expectations of 190,000, according to Bureau of Labor Statistics data released on Friday.
The unemployment rate rose to 4.1 percent from 4 percent the previous month, the highest level in nearly three years. Payrolls fell slightly in June from May. The May payroll gain was revised downward to 218,000 on Friday from the 272,000 initially reported last month. The combined revisions for April and May showed the U.S. economy had 111,000 fewer employees than initially reported.
“The June jobs report provided further signs of a cooling labor market, with weaker-than-expected job growth, a rising unemployment rate and slowing earnings growth,” Nancy Vanden Houten, chief U.S. economist at Oxford Economics, wrote in a client note.
The S&P 500 (^GSPC) and Nasdaq Composite Index (^IXIC) rose following the report, adding to a rally that followed markets trading at record highs earlier this week amid a flurry of weaker-than-expected economic data, including an inflation reading that suggested the U.S. was once again heading down a “disinflationary path,” in the view of Federal Reserve Chairman Jerome Powell.
read more: How does the labor market affect inflation?
Ahead of Friday’s jobs report, investors are pricing in two rate cuts this year, with the first likely to come in September.
Investors rate the Fed’s interest rate cut in September at about 75% probability, according to the CME FedWatch tool. Last month, the Fed’s forecast suggested one rate cut would likely be appropriate this year.
Some see Friday’s report as further strengthening the case for the Fed to cut interest rates in the near future.
“Today’s jobs report should strengthen expectations for a September rate cut,” Neil Datta, head of economics at Renaissance Macro, wrote in a client note. “Economic conditions are cooling, which means the trade-offs are different for the Fed…. Chairman Powell should use July to set up a September rate cut.”
With jobless claims rising and the unemployment rate at its highest in more than two years, while inflation is falling, economists believe the Fed is walking an increasingly precarious tightrope by keeping interest rates at their highest in more than 20 years.
“Given the clear weakness in the labor market over the past year, we believe further weakness in the labor market would be more concerning and less welcome by the Fed,” Sarah House, senior economist at Wells Fargo, wrote in a client note on Tuesday.
Data released earlier this week also showed signs of a slowdown in the labor market.
The ADP Research Institute’s National Employment Report released Wednesday showed private sector payrolls added 150,000 in June, slowing from an increase of 157,000 in May.
Meanwhile, about 1.86 million continuing claims for unemployment insurance were filed in the week ending June 29, up from 1.83 million the previous week, according to data from the Department of Labor. This marks the ninth consecutive week that continuing claims have increased.
Friday’s report showed that wage growth, a key gauge of inflationary pressures, slowed to 3.9% from a year ago. On a monthly basis, wages rose 0.3%, down from a 0.4% increase in the previous month.
Meanwhile, the labor force participation rate rose to 62.6% from 62.5% the previous month.
The biggest job gains in Friday’s report were in government employment, which increased by 70,000 in June. At the same time, health care employment increased by 49,000, lower than the average monthly increase of 64,000 over the past 12 months.
Josh Shaffer is a reporter for Yahoo Finance. Follow him on X Follow.
For in-depth analysis of the latest stock market news and events that are moving stock prices, click here..
Read the latest financial and business news from Yahoo Finance
