The US economy created 57,000 new jobs in June, below the 129,000 added in May, and far less than the expected 115,000. The unemployment rate was down to 4.2 percent due to a 0.3 percent decline in the labor force participation rate, which is at its lowest since March 2021. Average hourly earnings in June rose 0.3 percent for the month and 3.5 percent from a year ago.
The June job report did not clarify the Fed’s monetary policy decision making process. The report was softer than expected, given the robust job creation reports in the last few months, yet the unemployment rate moved down to 4.2 percent due to a shrinking workforce. In the last 6 months, the private sector has averaged 88,000 new jobs per month, the best in two years.
The strong labor market performance puts the Fed’s focus on controlling inflation, but it is not necessarily robust enough to push the Fed to raise interest rates immediately. The odds of a July rate hike has fallen to 20 percent from 33 percent before the jobs report was released.
Given the strength of the labor market, and if it holds in the coming months, the Fed will make inflation control its primary concern; pricing data will drive monetary policy with greater weight than will the labor market. Fed Chair Warsh called the jobs picture “steady” as he stressed importance of bringing inflation down to 2 percent.