Updated at 9:45 a.m. ET with additional insights from the report, analyst commentary and market reaction
The U.S. job market experienced some softness in June, according to a report released by the Bureau of Labor Statistics (BLS) Thursday morning, confirming the softness relayed by recent labor market statistics.
BLS' June monthly non-farm payrolls report showed that the U.S. economy added 57,000 jobs in June. And the job growth for May and April were revised lower, taking the combined job growth for the previous two months down by 74,000.
June Job Growth Comparisons
| June Actuals | Consensus (June) | May | April | |
|---|---|---|---|---|
| Payroll Change | 57,000 | +114,000 | +129,000 | +148,000 |
| Jobless Rate | 4.2% | 4.3% | 4.3% | 4.3% |
| Average Hourly Wage Growth (YoY) | +3.5% | +3.5% | +3.4% | +3.6% |
Composition of Job Growth
Private payrolls added 49,000 jobs during June versus May's 129,000 growth, with goods providers increased payrolls by 10,000 and service providers by 39,000. These two segments had added 7,000 and 90,000 jobs, respectively, in May. Government jobs rose by 8,000, sharply lower than May's 32,000 gain.
The manufacturing sector added 6,000 jobs, while construction job growth accelerated to 11,000 from 6,000.
Among service providers, retail trade lost 7,500 jobs as opposed to the 8,200 addition in May. Leisure and hospitality lost 61,000 jobs, as opposed to the 40,000 gain in May. Looking at the status in the leisure and hospitality industry, Harris Financial Group Managing Partner Jamie Cox does not see the June print as credible and expects upward revisions in the coming month. "There is zero chance leisure and hospitality posts a negative print in the midst of the World Cup," he said.
On the other hand, professional and business services reported payroll gains of 69,000, faster than May's 45,000 gain. Financial activities did not add jobs, an improvement from the 22,000 gain in May. Temporary help services added 9,300 jobs after seeing a 500-dip in the previous month.
Some strategists had braced for a big boost from Soccer World Cup related hiring, which potentially reflected in temporary help hirings.
Behind the Lower Jobless Rate: Fewer Workers, Not More Jobs
The number of unemployed remained little changed (7.1 million) from the previous month and the previous year, despite the tick down in the jobless rate. The labor force participation rate edged down 0.3 percentage points to 61.5%.
The dip in jobless rate data cannot be taken as a signal of strength as it has come on the back of fewer people actively seeking work rather than a surge in hiring.
The U6 employment rate, which is a broader measure of labor underutilization (tracking unemployed, marginally attached workers and part-time workers who desire full-time employment), eased to 7.9% to 8.1%. This, however, indicates an improvement in labor underutilization as fewer workers were involuntarily part-time or marginally attached to the labor force.
A Mixed Message for Warsh's Fed
Overall, the data point to a labor market that is gradually cooling rather than weakening sharply, reinforcing the view that labor market tightness is easing without signaling widespread deterioration, a backdrop that supports expectations for a patient Federal Reserve and the prospect of a soft landing.
New Fed Chair Kevin Warsh has explicitly moved the central bank away from forward guidance toward a data-dependent framework, telling reporters after his first Federal Open Market Committee (FOMC) meeting in June that the Fed "will decide" on rates based on incoming data .
While speaking at the European Central Bank 's (ECB) annual meeting held at Sintra, Portugal, on Wednesday, Warsh issued hawkish comments, emphasizing the Fed's intent to bring inflation down to the 2% central bank target.
Given the job growth was subpar, the jobless rate edged down and inflation gauge of the report, namely the annual rate of the average hourly wage growth pointing to an inflation environment which is neither hot nor cold, the June report complicates the Fed's policy decision.
What Economists Say
Lloyd Financial Chief Investment Officer Colin Symons said the weaker-than-expected print is good news for the markets. He noted that the two-year Treasury yield, which closely tracks expectations for the Fed's policy path, fell to 4.135% from 4.2% on Wednesday. Lloyd Financial is now pricing only one hike, he added.
That said, Symons does not shrug off the June print as weak. "The numbers were a bit weak but given what's effectively negative immigration, that's not a big deal at all. It's been a strong job market, and a little weakening is no big deal," he added.
The strategist sees a Goldilocks scenario: "Not so hot that rate hikes are a thing; not so cool recession fears arise." "I'd expect this trend of pricing out hikes and a weaker dollar to continue, which is supportive of risk assets," he added.
LPL Chief Economist Jeffrey Roach highlighted the hours worked, which declined, signaling an upcoming slowdown in broader economic activity. A concerning trend seen from the report is the people dropping out of the job market, Roach said, adding that an additional, 2.5 million people have dropped out of the labor force since last year.
"For now, the labor market is holding, giving the Fed opportunity to stay focused on price stability," he added.
Risk Assets Climb
The lukewarm report has buoyed risky bets. The E-Mini S&P 500 (ES) futures contract rose 0.16% following the print, and the E-mini Nasdaq 100 futures contract advanced 0.25%. According to MarketFramework data, NQ and Micro E-mini Nasdaq 100 (MNQ) contracts have seen 7% and 19% increase in trading volume early Thursday, although sentiment is more or less neutral.
The U.S. Dollar Index (DXY), which was modestly higher before the report, has reversed course, down about 0.60% at 100.79.
While crude futures (CL) continue to head southward amid supply optimism, the dollar denominated base and precious metals climbed.
