The U.S. economy added just 57,000 jobs in June, less than half the pace Wall Street expected, and the labor force shrank to its smallest share in five years, the Labor Department reported Thursday.
The report pushed a September interest-rate increase off the table for traders and lifted the S&P 500 by 0.7 percent in mid-morning trading. It also revealed that the unemployment rate slipped a tenth of a percentage point to 4.2 percent mainly because 507,000 fewer people were counted as working and many stopped looking for jobs, not because hiring accelerated.
The Bureau of Labor Statistics also cut its estimates for the prior two months. May payroll growth was revised down by 43,000 to 129,000, and April was cut by 31,000 to 148,000. Job creation over the first half of the year averaged 92,000 a month, better than the sub-10,000 pace of a year earlier but well short of the acceleration that had appeared to be building this spring.
Leisure and hospitality shed 61,000 positions in June, which the BLS attributed to slower-than-usual seasonal hiring and which surprised forecasters who had expected the World Cup tournament in U.S. cities to lift restaurant and hotel payrolls. Goldman Sachs had projected a 40,000 gain from the tournament alone. Retailers cut 7,500 jobs. Professional and business services, the category that captures architecture, engineering and software development, added 36,000 workers. Social assistance grew by 25,000, healthcare by 22,000 and government by 8,000. Construction firms added 11,000 positions and manufacturers 3,000.
On the Street
Stocks rose and Treasury yields fell as traders concluded the Fed has less reason to lift its policy rate, which sits in a target range of 3.50 to 3.75 percent. The two-year Treasury yield slipped 3.5 basis points to 4.13 percent, and initial jobless claims edged down to 215,000 for the week ended June 27, below the 220,000 forecast.
"Today's data hit the sweet spot for markets — strong enough to keep worries about growth at bay, but soft enough to reduce the probability of a rate hike," said Eric Winograd, chief U.S. economist at AB Global.
CME futures showed no chance of a September rate increase after the report, though traders still assigned some probability to an October move. Seema Shah, chief global strategist at Principal Asset Management, said the softness "reinforces the view that the Federal Reserve is under little pressure to tighten policy."
A K-shaped read
The June softness landed hardest on the businesses that cater to the middle. Chad Moutray, chief economist at the National Restaurant Association, said member companies see consumers pulling back on dining out, especially outside higher-income households, in what he called a "K-shaped" economy.
"If you're catering to the upper-end of the K, you're doing fine. If you're catering to the lower part of the K, you're seeing some challenges in the last couple of months," Moutray said.
His group projects restaurants will hire 450,000 seasonal workers this summer, down from 470,000 a year earlier. Denise Beckson, a vice president at Morey's Piers and Beachfront Water Parks in Wildwood, N.J., said her company hired about 1,500 summer workers, roughly last year's total, while food and minimum-wage costs squeeze others in the sector. "Costs continue to rise, and one way to control that is to pull back on staffing," Beckson said.
The inflation lens
Federal Reserve Chair Kevin Warsh read the same data through a different frame. Speaking in Portugal on Wednesday, Warsh called the jobs picture "steady" and reiterated that he would push inflation back to the central bank's 2 percent target. Personal-consumption-expenditures inflation ran at 4.1 percent in the year ending May, its highest reading since 2023 and more than double the Fed's goal.
Dan North, senior economist at Allianz Trade Americas, told the Washington Examiner that recent volatility in monthly figures muted the significance of a single miss. "On the non-farm payrolls out of the past three months, I think two of them were double expectations, so now we've got one that's half expectations. I'm not that worried about that," North said. For President Trump, whose administration has pointed to the labor market as a bright spot amid soft economic-approval ratings, positive growth of any size preserves an argument heading into the November midterm elections.
The Fed's rate-setting committee meets later this month, with Warsh so far declining to signal how he will vote. Average hourly earnings rose 0.3 percent in June and 3.5 percent from a year earlier, gains that still trail inflation.