What labor market data say about the economy

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

The June jobs report, released Friday morning by the Bureau of Labor Statistics, showed somewhat hotter hiring than economists had expected, with analysts forecasting 200,000 nonfarm job gains. That still marked a slowdown from May, which was revised down from 272,000 to 218,000.

April’s level was also revised sharply lower, showing 111,000 fewer jobs added over the previous two months than previously thought.

“June’s increase in nonfarm payrolls was slightly higher than expected, but the big downward revisions in April and May are history,” Kathy Jones, chief fixed income strategist at Charles Schwab, posted on Friday. “The job market is slowing down.”

The US labor market has defied long-term forecasts for a sharper contraction for months. Instead, the outlook for workers has generally remained strong even as employers gradually slow their hiring. But the latest figures show that conditions are tightening.

Unemployment rose to 4.1% in June, unexpectedly breaking the historically low rate of 4% that had not been exceeded since November 2021.

Some of the biggest job gains last month were in government and health care, which added 70,000 and 49,000 roles, respectively. The “professional and business services” sector – a category that includes many technology roles – has been roughly flat this year, the report said.

Workers’ wages 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 outpacing inflation — but at a slower pace.

“Right now we’re seeing a labor market that’s experiencing what I like to call a modulated easing,” Nela Richardson, chief economist at payroll processor ADP, told reporters earlier this week. “It’s hitting the right note at the right time.”

ADP’s own data on private sector employment showed on Wednesday that just 150,000 roles were added in June, less than expected, driven mainly by the leisure and hospitality industry. Other labor market indicators have pointed to a continued slowdown in growth as hot hiring boosted job prospects and workers’ wages during the recovery from the pandemic.

On Wednesday, however, the Labor Department reported that initial claims for jobless benefits continued to trend higher, while ongoing jobless claims hit their highest level since November 2021.

“While layoff rates remain low, if you do unfortunately lose your job, it is becoming much more difficult to find a new position,” ING’s global financial group chief economist James Knightley said in a note to clients this week.

Beyond the labor market, the Institute for Supply Management reported this week what Knightley called a “really terrible” Purchasing Managers’ Index survey for June.

The figure fell to 48.8 – below a forecast of 52.7 and a significant drop from the previous reading of 53.8. A reading below 50 is considered a signal of contractionary activity, and June was only the third time the index showed a contraction in the past 49 months – but the second such occurrence in the past three.

“Survey respondents report that overall, business is flat or lower,” ISM survey committee chairman Steve Miller said in a statement.

As business activity slows, inflation is also cooling. Last week, the Federal Reserve’s preferred gauge of price growth, the Personal Consumption Expenditure price index, rose 2.6% from a year earlier in May. This was the lowest annual rate since March 2021.

In comments this week, Fed Chairman Jerome Powell said risks to inflation and employment goals “have moved much closer to balance.” In other words, the odds that the Fed won’t act as aggressively to fight inflation at its 2% target are now even closer to the odds that unemployment will rise as a result.

“The longer the Fed maintains its high interest rate strategy, the greater the risk that it will hold back the economy too far,” Moody’s chief economist Mark Zandi told NBC News ahead of the new data. BLS on Friday. “We’re starting to see higher demand and layoffs and withdrawals from the labor market. That’s a growing concern.”