The US economy added slightly more jobs than expected in June, although the unemployment rate rose the Ministry of Labor said Friday.
Nonfarm payrolls rose 206,000 in the month, better than the Dow Jones forecast of 200,000, though less than a downwardly revised gain of 218,000 in May, which was a sharp drop from the initial estimate of 272,000.
The jobless rate unexpectedly rose to 4.1%, tied for the highest level since October 2021 and providing a conflicting sign for Federal Reserve officials weighing their next move on monetary policy. The forecast was that the unemployment rate would remain stable at 4%.
“The labor market is flexing without breaking yet, which strengthens the case for rate cuts,” said David Russell, global head of market strategy at TradeStation. “Things are not too hot and not too cold. Goldilocks is here and September is in play” for a Fed rate cut.
The increase in the unemployment rate came as the labor force participation rate, which indicates the level of working-age people who are employed or actively looking for work, rose to 62.6%, up 0.1 percentage point. The so-called prime-age rate, which focuses on people aged between 25 and 54, rose to 83.7%, the highest rate in 22 years.
A broader jobless rate that counts discouraged workers and those holding part-time jobs for economic reasons remained steady at 7.4 percent. Household employment, which is used to calculate the unemployment rate, rose by 116,000. The household survey also showed a decrease of 28,000 in full-time workers and an increase of 50,000 in part-time workers.
Although job creation in June beat expectations, it was largely due to an increase of 70,000 public sector jobs. Also, health care, a consistent sector leader, added 49,000 while social assistance contributed 34,000 and construction rose 27,000.
Several sectors declined, including professional and business services (-17,000) and retail trade (-9,000).
On the wages side, average hourly earnings rose 0.3% for the month and 3.9% from a year ago, both in line with estimates. The average working week was stable at 34.3 hours.
Stock futures moved higher after the report, while bond yields were negative.
In addition to substantially revising May’s payrolls number, the Bureau of Labor Statistics cut April to just 108,000, a slide of 57,000 from the previous estimate. Combined, revisions were down 111,000 from the April and May totals.
Long-term unemployment rose sharply in the month to 1.5 million by 166,000, up from 1.1 million last year. The BLS said the share of the long-term unemployed as a percentage of the overall unemployment rate was 22.2 percent, compared with 18.8 percent a year earlier.
The unemployment rate for black workers rose to 6.3%, the highest since March. The rate for Asians jumped a full percentage point to 4.1%, the highest since August 2021.
The report comes with Federal Reserve officials mulling their next moves on monetary policy.
At their most recent meeting, policymakers said they needed to see more progress on inflation before cutting interest rates, noting that a strong economy and particularly a stable labor market lessened the urgency to act anytime soon, according to minutes released earlier this week.
Despite indications to the contrary, markets are pricing in two rate cuts, assuming quarter percentage point cuts, before the end of 2024. Fed officials at the June meeting penciled in just one cut, saying they should see “additional favorable data” before moving forward with reductions.
“There are no cracks here that would cause the Fed to rush to the rescue with rate cuts, and the labor market is aligned with inflation continuing to slow,” said Robert Frick, corporate economist at Navy Federal Credit Union. “That should lead to one or two cuts this year.”
The Fed is targeting its key lending rate in a range between 5.25%-5.50%, the highest in 23 years and a level where it has remained for about a year.
There have been signs of cracks in the labor market recently, with surveys of purchasing managers showing a contraction in hiring in both manufacturing and services.
In addition, broader economic growth is slowing. Gross domestic product grew just 1.4% year over year in the first quarter and is on track to grow at a pace of just 1.5% in the second quarter, according to the Atlanta Fed.
