US economy creates 206,000 jobs but unemployment rises

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The U.S. labor market has shown signs of slowing, with the unemployment rate rising in June and the pace of job growth in recent months falling short of previous expectations.

The U.S. economy added 206,000 jobs last month, the Bureau of Labor Statistics said Friday, beating the 190,000 expected by economists polled by Reuters, but revisions to data for April and May meant that the number of jobs in those two months was 111,000 lower than originally reported.

Friday's nonfarm payrolls report also showed the U.S. unemployment rate rose to 4.1% from 4%, its highest level since November 2021. Economists had expected no change.

The resilience of the U.S. labor market over the past two years has allowed the Federal Reserve to take a cautious approach to lowering borrowing costs as part of its efforts to control inflation. With price pressures easing, the central bank is closely monitoring employment conditions to help it decide when to begin a rate-cutting cycle.

The recently released minutes from the June central bank meeting showed that policymakers were welcoming the easing of price pressures, but were becoming more alert to downside risks to the U.S. labor market and the possibility that it could shift from strong to weak relatively quickly.

Several members of the Fed's rate-setting committee stressed at their meeting that with the labor market normalizing, further weakening in demand could now generate a larger unemployment response than in the recent past, when the decline in labor demand was felt more through fewer job openings, according to the minutes.

Figures like these will raise eyebrows at the Fed and spark a discussion about whether rates are too restrictive and threatening the expansion, Robert Tipp, head of global bonds and chief investment strategist at PGIM Fixed Income, said of Friday's nonfarm payrolls report.

Tipp said the seemingly dull report showed that several factors were contributing to a weakening trend in the national labor market that could facilitate rate cuts by the Fed later this year.

Downward revisions to previous months, a high share of health and public sector employment, reductions in temporary workers and a weak household survey all point to a picture of moderation in the labour market, he said.

The BLS revised down its May nonfarm payroll figure from 272,000 to 218,000, while April's figure was revised down from 165,000 to 108,000. That means employment in those two months was 111,000 lower than previously reported.

Average hourly earnings rose 3.9 percent in June from a year earlier, the slowest pace of growth in three years, according to the BLS report.

Data released earlier this week paint a somewhat mixed picture of the labor market. In signs of a slowdown, private employers added fewer jobs than expected in June and new weekly claims for unemployment benefits rose slightly. But demand for American workers increased slightly in May, according to a report on better-than-expected job openings.

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Treasury yields fell to multi-month lows Friday after weaker June jobs data, which traders said could allow the Fed to cut interest rates twice this year.

The yield on two-year Treasury notes, which is sensitive to monetary policy expectations, fell 0.09 percentage points to a three-month low of 4.61%. Traders are pricing in about two interest rate cuts this year, with the first coming in November.

The S&P 500 index was up 0.3% in late morning trading in New York.

Eric Winograd, senior fixed-income economist at AllianceBernstein, said he didn't think the latest jobs report changed the fundamental picture of the national economy.

The report is weaker than expected because of downward revisions to the figures for the last two months. The figures for May and June are now broadly in line. But the labor market is not collapsing.

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