What Labor Market Data Say About the Economy

The economy added 206,000 jobs last month, new government data showed, but unemployment remained above 4% for the first time in two years.

The June jobs report, released Friday morning by the Bureau of Labor Statistics, showed hiring was slightly warmer than economists expected, with analysts expecting 200,000 nonfarm job gains. That still marked a slowdown from May, when the level was revised down — from 272,000 to 218,000.

April was also cut sharply, adding 111,000 fewer jobs than expected in the previous two months.

“June’s rise in nonfarm payrolls was slightly higher than expected, but the larger downward revisions for April and May are the story,” said Kathy Jones, chief fixed income strategist at Charles Schwab. Published in X Friday. “The job market is shrinking.”

The U.S. labor market has defied long-held forecasts of a sharp slowdown for months. Conversely, opportunities for workers generally remain strong even as employers gradually reduce their hiring. But the latest numbers show that conditions are tightening.

Unemployment rose to 4.1% in June, unexpectedly beating the historically low 4% rate that hasn’t been surpassed since November 2021.

Some of the strongest job gains last month were in government and healthcare, which added 70,000 and 49,000 roles, respectively. The “professional and business services” sector — a category that includes many technical roles — remained roughly flat throughout the year, the report said.

Wages of workers continue to rise. Average hourly earnings rose 3.9% in June from the same month last year, still higher than before the pandemic — and still higher than inflation — but at a slower rate.

“Right now we’re seeing what I like to call a modulated cooldown in the labor market,” Nela Richardson, chief economist at payrolls processor ADP, told reporters earlier this week. “It hits the right note at the right time.”

ADP’s own data on private sector hiring showed on Wednesday Just 150,000 characters were added in June, lower than expected, driven largely by the leisure and hospitality sector. Other labor market indicators point to a gradual slowdown in growth after a sharp hiring push that boosted workers’ job prospects and wages as they recover from the contagion.

However, on Wednesday, the Labor Department reported that initial claims for unemployment benefits continued to rise, while ongoing jobless claims reached their highest level since November 2021.

“While firing rates are low, if you unfortunately lose your job, it’s becoming increasingly difficult to find a new position,” James Knightley, chief economist at ING Global Financial Group, said in a note to clients this week.

Beyond the labor market, Supply Management Institute Nightly announced this week that it had a “really bad” Purchasing Managers’ Index survey for June.

The figure fell to 48.8 – below the forecast of 52.7 and a significant drop from the previous reading of 53.8. A reading below 50 is considered a signal of contracting activity, and June marked the third time in the past 49 months that the index has shown contraction — but only the second time in the past three.

“In general, survey respondents report that business is flat or declining,” ISM survey committee chairman Steve Miller said in a statement.

As business activity slows, inflation cools. Last week, the Federal Reserve’s preferred measure of price growth, the personal consumption expenditures price index, It rose 2.6% last May. This is the lowest annual rate since March 2021.

In this week’s notes, Federal Reserve Chairman Jerome Powell said risks to its inflation and employment targets “are back very close to equilibrium.” In other words, the odds that the Fed will not act aggressively to return inflation to its 2% target are now close to even the odds that unemployment will rise as a result.

“The longer the Fed maintains its high interest rate strategy, the greater the risk of pushing the economy further back,” Moody’s chief economist Mark Jandy told NBC News ahead of Friday’s new BLS data. “We’re starting to see more claims and layoffs and labor market recessions. That’s a growing concern.”