The U.S. economy added 57,000 nonfarm payroll jobs in June, well below the 100,000 increase economists forecast. The slower growth coincided with a decline in the unemployment rate to 4.2 percent, down from 4.3 percent in May. The Bureau of Labor Statistics released the figure alongside a downward revision to May's total, cut to 129,000 from an initial 172,000.
Christopher Hodge, chief U.S. economist at Natixis, called the June report "a solid but unspectacular labor market print." The job market appears to be in equilibrium, he said—neither generating inflationary pressure nor blocking workers from finding employment.
The three-month average for job creation fell to 111,000 through June from 164,000 through May, reflecting annualized growth of 0.8 percent for the three months ending in June, compared with 1.4 percent the prior period. Preston Caldwell, senior U.S. economist at Morningstar, attributed the deceleration to the weak June print and downward revisions to April and May figures.
Sectoral data showed leisure and hospitality shed 61,000 jobs—a trend Hodge attributed to the sector reaching its seasonal hiring peak in May. Government hiring rose in May, though Hodge does not expect that to continue through the year, citing one-off factors including World Cup-related hiring. White-collar categories—finance, information, professional services, management and administration—continued to expand, growing at an annualized rate of 0.3 percent over three months, Caldwell said.
The lower unemployment rate does not signal a strengthening labor market, Hodge said. He pointed to the labor force participation rate, which fell to 61.5 percent in June, arguing that few workers have entered the labor force over the past five years. The unemployment rate drop, he said, reflects a shrinking pool of job seekers rather than increased hiring.
Caldwell said the June figures would only incrementally shift the Federal Reserve's perspective. "It's clear the labor market is no longer weakening, but whether it is tightening, and to what extent, remains ambiguous," he said. He expects the Fed to hold rates unchanged at its July meeting, assuming oil prices remain subdued given tensions involving Iran.
Hodge said weak June employment data, combined with flat core Consumer Price Index readings month-over-month, gives the Fed room to hold. He expects rates to remain steady through the year as inflationary pressures ease. "We thought that only a large move to the downside would shake the Fed's thinking. This print was indeed such a move," he said.
In a joint FOMC preview, Hodge and Natixis colleague Selin Aker wrote that intermeeting data leaned dovish. They forecast the Fed will hold rates at its July meeting and continue to do so through 2026.
Hodge and Aker identified potential upside risks to that outlook. Tensions involving Iran and the prospect of additional tariffs could push oil prices higher, feeding through to inflation and challenging the case for an extended pause.
Hodge described the current environment as "a labor market that is exhibiting stability but not heat"—a balance where jobs remain available without generating wage pressure. Annual wage growth is running near 3.5 percent.
