NEW YORK, July 2 (Reuters) – U.S. job growth slowed more than expected in June and data for the prior month was revised lower, but the unemployment rate fell to 4.2%, pointing to continued labor market stability.
Nonfarm payrolls increased by 57,000 jobs last month after a downwardly revised 129,000 rise in May, the Labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Thursday. Economists polled by Reuters had forecast payrolls advancing 110,000 after a previously reported 172,000 increase in May.
MARKET REACTION:
STOCKS: S&P E-minismoved higher and were last up 12.75 points, or 0.17%
BONDS: Treasury yields fell, with the yield on the benchmark U.S. 10-year note down 0.4 basis point to 4.471%
FOREX: The dollar index weakened and was last down 0.66% to 100.74
COMMENTS:
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK:
“The jobs report this month was a relief for anyone worried about the economy overheating and causing too much inflation. Last month the jobs report came in stronger than expected and the market sold off hard. The fear was if the economy grows too much, what’s going to happen to inflation – it will go up and then the Fed has to raise rates.
“This jobs report lets anyone concerned about an imminent Fed hike to breathe a sigh of relief… it doesn’t mean the fear of inflation is over. It just takes the pressure off the Fed to raise rates in the short term. The fact that the jobs report came in not too hot, not too cold, that is encouraging… and we’re seeing that with futures higher.”
ERIC MERLIS, CO-HEAD OF GLOBAL MARKETS, CITIZENS, BOSTON, MASSACHUSETTS (via email)
“June’s payroll miss stands in stark contrast to the run of upside surprises earlier this year, but the labor market is still adding jobs and wages show few signs of accelerating.”
“With participation weakening and hiring cooling, the Fed’s decision to hold last month looks less like a policy mistake and more like prudent patience. Markets are already repricing a lower likelihood of Fed tightening as the inflation debate continues.”
DANIELA HATHORN, SENIOR MARKET ANALYST AT CAPITAL.COM:
“It potentially takes away some of the pressure on the central bank to hike rates. It doesn’t change the outlook significantly, but it does help to balance it out.
“This comes at a time, of course, when markets are once again placing a lot more emphasis on data, given Kevin Walsh’s appearances, the last one being yesterday, kind of saying that, you know, financial markets regulate themselves and they work efficiently and that the Fed essentially is going to be data dependent and it’s going to respond to what the markets and the data say.”
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, LYNNFIELD, MASSACHUSETTS:
“What it tells us, both today’s number, but especially in conjunction with the revision downward of last month’s number, is that the labor market was never as hot as last month suggested, and today is weaker than expected, but when you look at the moving average, it’s still okay.
“The bigger question is why did the labor force shrink so much? So you saw both the labor force participation go from 61.8% down to 61.5%, that’s a big drop. And you saw the labor force fall by 720,000 people. That’s also a big matter. And so mathematically, you get lower unemployment at 4.2% because you have a lower denominator for the labor force. But the question is, is the labor force falling because there’s not enough supply of labor, or because there wasn’t enough demand for labor? So in other words, do you interpret this as corporations not wanting to hire as much? Or do you interpret it as they still want to hire, but the labor force isn’t there to hire? And I think the jury’s still out on that one.
“It buys (Fed Chairman) Warsh some time. So it takes the pressure off. Because they made it clear that they were focusing on inflation more than the labor market. And as long as the labor market is well-behaved, which it appears to be, and not too hot, then they can hold off on rates. And so you saw the curve push out a little bit. Now the first full raise might be a month or two later than what we thought a couple of hours ago.”
STEVE KOLANO, CHIEF INVESTMENT OFFICER, INTEGRATED PARTNERS, WALTHAM, MA:
“Initial take on the NFP is that while the headline might give investors pause and cause for concern around the trajectory of the job market, below the surface there is some evidence that eases concern, at least in the near term.
“While the job number was almost half of what estimates were calling for, and previous reports were revised down, a good portion of the disappointment in hiring came from the leisure and hospitality sector, which had likely been impacted by the Iran conflict and higher energy prices as consumers cut back on discretionary spending. With, hopefully, the Iran conflict easing and energy prices quickly coming down, there is an expectation the slowdown in hiring in leisure and hospitality will reverse and even accelerate.
“Outside of leisure and hospitality, the main source of hiring was in health care and social services, which has been the case for some time. Going forward, the key will be to see hiring broaden into other areas beyond health care as energy prices ease, particularly with a reversal in leisure and hospitality, which is likely the source of the negative revisions.”
TIM HOLLAND, CHIEF INVESTMENT OFFICER, ORION ADVISOR SOLUTIONS, OMAHA, NE:
“Bad news is maybe good news this morning, as the U.S. added a much weaker than expected 57K jobs in June – Wall Street was looking for 115K new jobs and the miss to the downside follows on three better than expected jobs reports in a row – but futures are indicating an up open for the markets.
“Long story short, the concern of late among investors has been an economy that was possibly running too hot, putting interest rate hikes in play. While we would never root for anyone to lose their job, the soft jobs report makes any interest rate increase less likely and buys the Fed time as it waits to see if recent inflationary pressures do indeed prove transitory.”
FLORIAN IELPO, HEAD OF MACRO, LOMBARD ODIER INVESTMENT MANAGERS, GENEVA
“It’s a beautiful number. It’s the best number we could hope for, basically. You have three things you need to remember from this report. First thing, basically, it halves the production, the expectation from economists, which is a decent miss, I would say. Second, you have this negative revision on two months by 74K jobs. Negative, again, which also shows that the job market is not as hard as explained initially.
“So basically what it says is that the job market is doing fine, but it’s not hot enough to accelerate inflation pressures, which normally should help a lot of rates to decline, especially from the inflation part.”
SARAH YING, HEAD, FX STRATEGY, CIBC CAPITAL MARKETS, TORONTO:
“It is weaker than expected but the bulk of the numbers were in leisure and hospitality. That’s probably driven more by seasonal factors than by anything else, so it’s not very nefarious. There’s been a lot of weird statistical quirks in the data as of late, like in May that leisure and hospitality sector had better seasonals. I don’t see this as the worst data in the world and the unemployment rate at 4.2% is still very good.
“I do think that we’re in a period where we could see some consolidation in dollar strength, but by and large we still keep the dollar stronger thesis for a couple of reasons. Unless we continue to see disappointments in the labor market data, it still feels like the AI narrative is driving a lot of the flow. And if you have the market pricing in Fed cuts, that’s better for the equity market, so that encourages more investment into these AI names.
“This is the first ‘disappointment’ in nonfarms that we’ve seen in three months, so I would just wait on it. I don’t think a single print is going to do much, especially because if you look at the manufacturing data, that has improved, so there could be some of this trickle-down effect from better manufacturing, especially in the heartland of America, seeping into the service sector.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“(Fed Chairman) Warsh can wipe his brow. The labor market isn’t overheating. Inflation expectations are moderating. It means the Fed can take the whole summer off it wants as it won’t have to hike or cut.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH IN FAIRFIELD, CONNECTICUT”
“The weaker jobs number sort of speaks to the uncertainty that’s been going on because of the war involving the U.S., Israel, and Iran and you can see, you can understand why there’s been some difficulty in new hirings. I don’t think the economy is so weak that you have to start worrying about it. But rate cuts with lower oil prices, I think, is a good environment for stock investors right now.
“It speaks to the fact that the market has taken this information as another step towards possibly getting a rate cut later this year. You get a weaker jobs number, which implies that the economy isn’t so strong, meaning that the Fed is less likely to raise rates and more likely to maybe cut rates going forward.It makes borrowing cheaper and it makes doing business less expensive and so the stock market welcomes the weaker data because it might lead to rate cuts.
“The consumer discretionary area, which is having a difficult time because of higher energy prices. It could also continue to benefit the technology space because so many of the hyperscalers are borrowing money and then trying to build out data centers and projects.”
SHAWN SNYDER, ECONOMIC STRATEGIST, POTOMAC FUND MANAGEMENT, BETHESDA, MARYLAND:
“With the Federal Reserve considering rate hikes, this is not necessarily a bad report for the stock market. Lower bond yields would likely be welcomed by technology investors, who have become increasingly concerned about the rising cost of the AI buildout.
“The headline gain of 57,000 jobs is clearly disappointing, but it follows a familiar pattern. In 2024 and 2025, job growth averaged about 124,000 per month between March and May before slowing to an average of just 34,000 jobs in June. That pattern was one of the reasons the Fed opted for a 50 basis point insurance rate cut in September 2024. Ironically, today’s report may be one reason the Fed does not deliver insurance rate hikes at the September FOMC meeting.
“This report alone is not enough to take a rate hike off the table, but it may be enough to push the timing out.
“The most surprising element of the report was the loss of 61,000 jobs in the leisure and hospitality sector. That is the largest monthly decline since December 2020 and runs counter to expectations that the sector would receive a boost from the World Cup.”
MARK HACKETT, CHIEF MARKET STRATEGIST, NATIONWIDE INVESTMENT MANAGEMENT GROUP, PHILADELPHIA:
“Slightly weak, but the numbers have been somewhat unpredictable and volatile lately. The big delta versus consensus was leisure and hospitality, which many thought would jump because of the World Cup. Market reacting slightly positive because of the dovish implications for the Fed, but the relatively modest reaction is evidence that the payroll report is losing its grip on investor attention.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“What we’re seeing here is a report that certainly was a little bit cooler than market expectations and certainly cooler than we were looking for, but with the unemployment rate dropping to 4.2% and yearly hourly wages at 3.5%, this could be considered a Goldilocks report.
“It reinforces the notion that the Fed has to fight inflation, but not an overly heating jobs market. It buys time to hold off on raising interest rates at least in July.”
“(A rate hike) is still on the table, but I am looking more towards the first quarter of 2027. But the market seems to be betting for at least one rate hike sometime this year that probably could take place in the last quarter of the year.
“Yesterday, at the ECB Forum, Chief Warsh was very clear. He did not commit himself to hiking rates, but he did say inflation is high, and oil prices have come down. So I think he’s going to hold off and probably begin to look at a different metric of measuring inflation.”
“In terms of the markets today, we’re seeing that they’re responding on a positive side. This is a good report that will boost investor optimism.”
KAY HAIGH, GLOBAL HEAD AND CIO OF FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, LONDON (via email):
“Ongoing labor market stability likely leaves the FOMC focusing on upcoming inflation data to determine its appetite for tightening policy. We still see a path for the Fed to stay on hold for the rest of the year, however any further upside surprises to inflation could convince the committee to hike sooner rather than later.”
(Compiled by the Global Finance & Markets Breaking News team)
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