Job Market Slows Sharply in June, Unemployment Ticks Down to 4.2%

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US Job Growth Slows in June, Unemployment Ticks Down to 4.2%

U.S. employers slowed their hiring last month and the unemployment rate ticked down to 4.2% as participation in the labor force dropped to the lowest in more than five years, according to data released Thursday by the Labor Department.

The U.S. economy added 57,000 jobs in June, falling well short of economists' expectations that payrolls had grown by 110,000 jobs. The disappointing total broke a three-month streak of gains that topped economists' expectations and had offered hope that the labor market was breaking out of a "low-hire, low-fire" pattern that depressed job growth totals last year.

The Labor Department data included downward revisions to the prior two months' gains, reducing the previous totals for April and May by a combined 74,000 jobs. The labor force participation rate fell three-tenths of a percentage point to 61.5%, the lowest since March 2021, as 720,000 people dropped out of the job market. The labor force participation rate for so-called prime-age workers - that is, those between the ages of 25 and 54 - dropped from 83.9% to 83.3%, which economists say could just be a statistical quirk but is worth watching. And the employment-to-population ratio fell to 59%, also a low dating back to 2021.

"The participation drop reflects the immigration slowdown," Chris Low, chief economist at FHN Financial, told Reuters.

'An obvious disappointment': The latest numbers suggest that the labor market faces some lingering turbulence.

"June's employment report was an obvious disappointment, though the report should not sway anyone's overarching views on the economic outlook," Neil Dutta, the head of economics at Renaissance Macro Research, said in a note cited by Bloomberg. "The main story here is of a labor market that reflects the broader economy. Economic growth is uneven and thus, the labor market is too."

A decent underlying trend: Still, many economists see continued resilience and underlying strength in the job market. Employment gains for April, May and June averaged 111,000 a month, far stronger than the 34,000 average for the same months a year ago. The U.S. economy added just 181,000 jobs in total last year.

"The June jobs report wasn't quite as peppy as the prior three reports, but it still points to overall general health in the labor market," J.P. Morgan economist Michael Feroli wrote in a note to clients. "Before today's revisions, the nonfarm job growth figures over the March-May period stood out among other job data as exceptionally strong, and so we see today's modest setback as merely a normalization back to a still-decent trend."

Growth was strongest in the healthcare sector (up 47,000), professional and business services (up 36,000) and private education (up 22,000). It was weakest in the information sector, which lost 9,000 jobs and has reportedly seen payrolls fall for 17 of the last 18 months. Retailers also cut 7,500 jobs.

Easing Federal Reserve fears: "For the Fed, today's report should allay any concerns that a reacceleration in the labor market is a source of upside inflation risks," Feroli wrote. That may reduce pressure on the Fed to consider a near-term hike in interest rates. Market odds that the Fed would hold rates steady in July rose from 71% yesterday to better than 82% today, according to the CME FedWatch tool, while odds of a September hike edged lower.

"Today's data hit the sweet spot for markets - strong enough to keep worries about growth at bay, but soft enough to reduce the probability of a rate hike," Eric Winograd, chief U.S. economist at asset management firm AB Global, told the Associated Press.

No World Cup boost? Economist said there was still no sign of an expected job boost from the soccer World Cup, which kicked off last month. But payrolls in the leisure and hospitality sector fell by 61,000, the biggest such drop since 2020, "reflecting weaker than usual seasonal hiring," the Bureau of Labor Statistics said. Payrolls at restaurants and bars fell by nearly 33,000, while jobs at hotels and motels fell by almost 22,000.

Chad Moutray, chief economist at the National Restaurant Association, told the Associated Press that the companies his group represents are seeing a "K-shaped" economy, in which there is a divide between higher- and lower-income households.

"We continue to hear that a lot of Americans are struggling to make ends meet," Moutray told the AP. "If you're catering to the upper-end of the K, you're doing fine. If you're catering to the lower part of the K, you're seeing some challenges in the last couple of months."

Inflation still wiping out wage gains: Average hourly earnings grew 3.5% in the 12 months through June, up from 3.4% as of May. But the Consumer Price Index rose at a 4.2% annual rate as of May, meaning that inflation has been outpacing the increase in workers' earnings.

The bottom line: The U.S. unemployment rate has been at or below 4.5% since October 2021, but the job market is encountering some bumps as it continues to chug along - and American consumers still don't feel great about the economy as their paychecks struggle to keep pace with inflation.

Quote of the Day

"After this recess, if it doesn't happen in the first couple of days, then I think it's in real trouble."

− Rep. August Pfluger of Texas, chair of the conservative Republican Study Committee, as quoted by Politico about the outlook for the GOP's potential third budget reconciliation package, intended to boost defense spending and address other party priorities.

GOP leaders had hoped to advance a budget resolution this week as a first step toward their third reconciliation bill, but those planned were scuttled as the House floor was frozen by hard-liners angling for Senate passage of the SAVE America Act, an election reform bill.

While a third Republican reconciliation bill has long faced considerable challenges and intense skepticism among GOP lawmakers, even champions of the idea are now conceding that their hopes have dimmed as members continue to fight over what to include in the long-shot package and how to pay for it.

Number of the Day: $5.7 Billion

The Trump administration is proposing a change that would reduce Medicare payment rates in a program that hospitals use to buy discounted drugs. The administration says that it could save people with Medicare coverage $1.15 billion and save taxpayers an estimated $4.55 billion, "for total reduced drugs spending of approximately $5.7 billion in 2027 alone."

The proposed rule would apply to hospitals in what's known as the 340B program, which lets those hospitals buy prescription drugs at discounted prices. The administration "would cut by roughly 40% that amount that hospitals in the discounted drug program could be paid through Medicare programs," Josh Boak of the Associated Press reports.

Ashley Thompson, senior vice president at the American Hospital Association, told the AP that the proposal would hurt hospital finances: "These proposals will undermine the ability of hospitals to maintain essential services and protect affordable access to care for those who depend on the 340B program."

Fiscal News Roundup

• Congressional Republicans Confront a Lost Summer – Politico
• Frustration Mounts as GOP Infighting Derails House – The Hill
• US Employers Still Reluctant to Add Many Jobs as Hiring Slows in June – Associated Press
• US Hiring Slows Sharply, Curbing Recent Job-Market Momentum – Bloomberg
• DOGE Cut Off Small Town America's 250th Birthday Money – NOTUS
• Trump Administration Proposes a Rule It Says Could Save Medicare Patients $1.1 Billion on Drugs – Associated Press
• Trump Administration's $46 Billion 'Smart Wall' Races Ahead on the US-Mexico Border – Associated Press
• New Disease Threats Follow Trump Administration's Health Program Cuts – KFF Health News
• Planned Parenthood Set to Regain Federal Funding as GOP Ban Expires – The Hill
• Tillis: SAVE America Act Is 'Dead' as Time Has Run Out to Implement New Voting Rules – The Hill
• A Firm Run by Trump Allies is Organizing the 250th. Their Fee? Unclear. – New York Times
• New Jersey Is Set to Charge Companies With Workers on Medicaid. Other States May Follow – Associated Press
• Gavin Newsom Wants to Ban the "Buy, Borrow, Die" Tax Strategy. Here's What It Is. – CBS News

Views and Analysis

• Promising Much to Many, Johnson Loses His Grip on the House – Michael Gold and Carl Hulse, New York Times
• Trump's Job Market Is Proving Resilient. Consumer Confidence Is Still Sagging. – Sam Sutton and Victoria Guida, Politico
• Labor Market Not a Source of Inflationary Pressure, Latest Report Shows – Colby Smith, New York Times
• Look Past the Jobs Numbers: Three Ways Trump Is Strangling the Economy – Steven N. Durlauf, New York Times
• What 250 Years of Tax History Reveal About the US Tax Code – Nate Scherer and William McBride, Tax Foundation
• Trump Embraces 'Great Equivocator' Role Sending Mixed Signals That Vex Markets and Allies – Will Weissert, Associated Press
• Donald Trump Is Hard to Please. Has Mike Johnson Cracked the Code? – Francesca Chambers and Zachary Schermele, USA Today
• Fixing the Health Cost Crisis – Kelly Hooper and Sophie Gardner, Politico
• Abolish the NIH – Scott Atlas, Washington Post
• The GOP's Dirty Little Secret About the SAVE America Act – Meredith Lee Hill, Politico
• Who's Speaking for the Fed? Not Kevin Warsh. – Victoria Guida, Politico
• Democrats Need a Reconstruction Agenda-Not an Affordability One – Perry Bacon and Adam Gurri, New Republic (video)