United States job growth slowed significantly in June as employers added fewer workers than expected and payroll figures for the previous two months were revised lower, signalling a cooling labour market and reducing expectations that the Federal Reserve will raise interest rates in the near term.
According to the Labor Department's Bureau of Labor Statistics, nonfarm payrolls increased by 57,000 jobs in June, well below economists' forecasts of 110,000 new positions.
The unemployment rate edged down to 4.2% from 4.3% in May. However, the improvement reflected a sharp decline in labour force participation rather than stronger hiring, with around 720,000 people leaving the workforce during the month.
The participation rate fell to 61.5%, its lowest level since March 2021 and the weakest reading in more than five years.
The report, released a day earlier than usual ahead of the United States' Independence Day holiday, also included downward revisions showing the economy created 74,000 fewer jobs across April and May than previously estimated.
The weaker-than-expected employment figures prompted investors to further reduce expectations of additional monetary tightening by the Federal Reserve.
Financial markets continued to expect the central bank to leave interest rates unchanged this month, while the probability of a September rate increase fell to about 60%, down from roughly 75% before the report.
Some economists cited by Reuters attributed the sharper slowdown in hiring to the delayed economic effects of conflict in the Middle East, which lifted petrol prices and fuelled inflationary pressures.
Although petrol prices have eased from recent highs following a fragile ceasefire between the United States and Iran, they remain above levels seen before the conflict began in late February, potentially weighing on discretionary consumer spending such as dining out.
The leisure and hospitality sector recorded the largest employment decline, shedding 61,000 jobs, the biggest monthly fall since December 2020. The Bureau of Labor Statistics said the decline reflected weaker-than-usual seasonal hiring.
Restaurants and bars lost 32,900 positions, while hotels and motels cut 21,700 jobs despite expectations that the FIFA World Cup, jointly hosted by the United States, Canada and Mexico, would support hiring activity.
Professional and business services led employment gains, adding 36,000 jobs during the month. Social assistance employment increased by 25,000, while healthcare added 22,000 positions, below its average monthly gain of 38,000 over the past year.
Elsewhere, construction employment rose by 11,000 and manufacturing added 3,000 jobs. Retail employment declined by 7,500 positions, while the information sector lost 9,000 jobs.
Employment in the financial sector was unchanged, while government payrolls increased by 8,000 after rising by 32,000 in May.
Despite the weaker headline figures, employment growth remained stronger than a year earlier. Payrolls averaged 111,000 new jobs per month during the second quarter, compared with 34,000 per month over the same period last year.
The share of industries reporting employment growth slipped to 54.4% in June from 56.0% in May, suggesting hiring momentum softened across a broader range of sectors.
Wage growth remained relatively stable. Average hourly earnings increased 3.5% over the 12 months to June after rising 3.4% in May.
However, wage growth continued to trail inflation, with the consumer price index (CPI) increasing 4.2% year-on-year in May, raising concerns that household purchasing power and consumer spending could weaken further.
The decline in the unemployment rate followed three consecutive months at 4.3%, though the fall was largely driven by reduced labour force participation.
Household employment fell by 507,000 people in June after increasing by 149,000 in May. The employment-to-population ratio declined to 59.0% from 59.2%, indicating a weaker capacity for the economy to generate employment.
There were, however, some encouraging signs within the household survey. The number of people working part-time for economic reasons declined, while fewer workers experienced prolonged periods of unemployment.
As a result, the median duration of unemployment fell to 11.0 weeks from 11.6 weeks in May.
