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June Nonfarm Payrolls Report Shows 206,000 New Jobs, Unemployment Rises to 4.1%

TL;DR intro

  • Job Growth:June nonfarm payrolls increased by 206,000 jobs.
  • Unemployment:Unemployment rate rose unexpectedly to 4.1%.
  • Wage Growth:Average hourly earnings grew by 0.3% for the month and 3.9% year-over-year.

In June, the U.S. economy added 206,000 jobs, surpassing the Dow Jones forecast of 200,000 but falling short of the revised gain of 218,000 in May. This increase came alongside an unexpected rise in the unemployment rate, which climbed to 4.1%, the highest level since October 2021, according to the Labor Department's report released on Friday.

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The June job gains were largely driven by a significant increase in government employment, which surged by 70,000 jobs. The health care sector also continued its strong performance, adding 49,000 jobs, while social assistance and construction contributed 34,000 and 27,000 jobs respectively. However, there were declines in professional and business services, which lost 17,000 jobs, and retail, which decreased by 9,000 jobs.

Average hourly earnings rose by 0.3% for the month and 3.9% from a year ago, both aligning with expectations. The average workweek remained steady at 34.3 hours.

The unemployment rate's increase to 4.1% was accompanied by a rise in the labor force participation rate, which edged up to 62.6%. The prime-age labor force participation rate (ages 25-54) also rose to 83.7%, its highest in over 22 years. Despite the rise in the overall unemployment rate, the broader unemployment measure, which includes discouraged workers and those employed part-time for economic reasons, held steady at 7.4%.

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Market Reactions

Following the report, stock market futures nudged higher, while Treasury yields were negative. Traders increased their bets on a potential interest rate cut by the Federal Reserve in September.

David Russell, global head of market strategy at TradeStation, commented, β€œThe job market is bending without yet breaking, which boosts the argument for rate cuts. Things are not too hot and not too cold. Goldilocks is here and September is in play for a Fed rate cut.”

Revisions and Long-term Unemployment

The Bureau of Labor Statistics also made substantial revisions to previous months' job counts. April's payrolls were revised down by 57,000 to 108,000, and May's were cut by 54,000 to 218,000, totaling a reduction of 111,000 jobs for the two months combined.

Long-term unemployment saw a significant increase, rising by 166,000 to 1.5 million, which is notably higher than the 1.1 million recorded a year ago. The long-term unemployed now make up 22.2% of the total unemployed population, compared to 18.8% last year.

Economic Context

The report arrives as Federal Reserve officials deliberate their next steps in monetary policy. Recent meeting minutes indicated that while more progress on inflation is needed before rate cuts, the solid labor market reduces the urgency for immediate action. Despite this, markets are pricing in two potential rate cuts by the end of 2024, while Fed officials have suggested only one cut, pending additional favorable data.

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The June nonfarm payrolls report provides a mixed picture of the U.S. labor market. While job growth remains solid, the unexpected rise in the unemployment rate and revisions to previous months' data indicate potential weaknesses. The Federal Reserve's response to these developments will be closely watched as they consider their next moves on monetary policy.

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