Low scoring labor market
The expected economic bounce from those soccer balls has been surprisingly low.
Bottom line
US nonfarm payrolls posted a much weaker-than-expected gain of only 57,000 jobs in June versus consensus expectations for a gain of 113,000. Federated Hermes had a more constructive outlook for a gain of 122,000. June’s results mark a sharp decline from revised gains of 129,000 jobs in May (preliminary gain of 172,000), 148,000 in April (preliminary gain of 179,000) and 214,000 in March.
Private payrolls were also only half as strong, adding a much softer-than-expected 49,000 jobs in June (consensus gain of 107,000 jobs expected), compared with revised gains of 97,000 jobs in May (preliminary gain of 120,000), 150,000 in April (preliminary gain of 177,000), and 202,000 in March.
But let’s keep this in perspective. Despite a disappointing June swoon, nonfarm payrolls have risen an average of 137,000 jobs in each of the past four months, compared with less than 10,000 per month in 2025.
Looking under the hood On the positive side, the unemployment rate (U-3) slipped to a one-year low in June of 4.2% and the labor impairment rate (U-6) fell to a one-year low of 7.9%. On the negative side, the labor force participation rate (the share of the population either working or actively looking for work) surprisingly declined to a five-year low of 61.5%. How did that happen? While the number of unemployed people declined by 213,000 in June, the civilian labor force plunged by 720,000 last month (after rising by 83,000 in May) and household employment plummeted by 507,000 (after adding 149,000 workers in May).
Maybe we need immigrants, after all What caused this plunge? The foreign-born civilian labor force declined by 700,000 people (a 2.2% drop) this June from a year ago, while the number of foreign-born employed people fell by 506,000 workers (1.6% decline). According to TrendMacro, Hispanic employment lost 612,000 workers in June compared with May.
Soccer conundrum Perhaps the most confounding aspect of today’s jobs report was the loss of 61,000 leisure & hospitality jobs in June, after the sector added 40,000 jobs in May. The global soccer tournament runs from June 11 to July 19, with 11 of the 16 North American host cities located in the US. Tourism and fan enthusiasm for the matches have been off the charts. Bank of America reports that sales in restaurants, bars and retail stores in those cities have been running more than double the pace of the rest of the country.
Moreover, unemployment for less educated workers — who typically work in these establishments — plunged to a five-month low of 5.5% in June from 6.0% in May. But the unemployment rate for highly educated workers was unchanged last month at 2.7%. So, it makes little sense to us that in leisure & hospitality, employment would swing negatively by 100,000 jobs from May to June. That could be a mistake by the Labor Department. We will give it a yellow card today, but if it makes a substantive positive revision in the coming months, it will deserve red.
How will the Fed respond on July 29? Investors have become increasingly concerned that the Federal Reserve’s next policy decision will be a quarter-point hike, arriving as early as this month's Federal Open Market Committee meeting, because of the recent spike in inflation. We disagree, expecting the Fed will look through the energy supply shock, which should be temporary, and keep rates unchanged. Today’s disappointing labor market data was good news for markets, which have pushed out their expectations for an eventual rate hike to later this year. We still expect stocks to hit a temporary air pocket from elevated levels over the summer and early fall months.
Other key labor market indicators are solid:
- ADP rises The human resources firm reported that private payrolls in June rose by a softer-than-expected gain of 98,000 jobs (gain of 120,000 expected) versus a 16-month high of 122,000 jobs in May. But monthly increases have averaged 108,000 jobs over the past three months — more than double gains of 46,000 during the first three months of 2026. Workers who changed jobs last month saw their wages rise by 6.6% year-over-year (y/y), less than half the cycle peak of 16.1% in April 2022. Job stayers earned a more modest boost of 4.4% y/y, well below the peak of 7.8% in September 2022.
- Challenger, Gray & Christmas layoffs decline Companies announced job cuts of 45,849 in June, 53% less than May and 4.5% lower than year-ago levels. The technology industry accounted for a third of the layoffs last month, likely due to the growing adoption of AI.
- Initial weekly jobless claims This high-frequency leading employment indicator rose to 227,000 for the survey week that ended June 13 but declined to a five-week low of 215,000 last week.
- Job Openings & Labor Turnover Survey (JOLTS) This report was surprisingly strong in May, as job openings of nearly 7.6 million were 4% above consensus expectations, roughly flat with April levels and 16% higher than December 2025’s five-year low of 6.55 million. But that is still almost 38% below a record 12.182 million openings in March 2022. While new hires at 5.17 million in May slipped 0.8% from April, they rose 5.5% from February’s six-year low of 4.9 million. The rate of job openings was unchanged at 4.6% in May but is up sharply from 4.2% in February and March and well above December 2025’s five-year low of 4.0%. The record was 7.4% in March 2022. The ratio of available job openings for every unemployed worker was unchanged for the third consecutive month at 1.0 in May. That is up from a five-year low of 0.9 in February but still well below a peak of 2.0 in March 2022. The quits rate held steady in May at a six-year low of 1.9%, down from 2.0% in March.
Unemployment, labor impairment & participation rates all fall Household employment plummeted by a five-month low of 507,000 in June, in sharp contrast to a gain of 149,000 workers in May, which was preceded by declines of 226,000 in April, 64,000 in March, 185,000 in February and 895,000 in January. The official rate of unemployment (U-3) ticked down to a one-year low of 4.2% in June, which is still above April 2023’s 53-year low is 3.4%. The Fed expects U-3 to finish 2026 at 4.3%. The labor impairment rate (U-6) declined to a one-year low of 7.9% in June versus 8.1% in May and 8.2% in April. The cycle low (dating back to 1994) is 6.6% in December 2022. The participation rate fell to a new five-year low of 61.5% in June versus 61.8% in April and May, down further from an eight-month high of 62.5% in November 2025.
Wage inflation rises & hours worked flat Average hourly earnings were steady at a 0.3% m/m pace in June. But wage growth ticked up to 3.5% y/y in June from a five-year low of 3.4% y/y in May. Hours worked were unchanged at 34.3 in June for the third consecutive month. Each 0.1 change is the equivalent of adding or subtracting an estimated 350,000 workers to or from the economy.
Sector details mixed:
- Temporary help (an important leading employment indicator) added 9,000 jobs in June, marking its fifth gain over the past six months.
- Manufacturing added 3,000 jobs, after two consecutive months of modest losses.
- Construction leapt to a gain of 11,000 jobs in June for the fourth consecutive month, likely due to the ongoing surge in company spending and data center construction.
- Retail lost 8,000 jobs in June, after gains in four of the previous five months. Retail sales were strong during “Marpril” and were surprisingly robust in May. We believe the Back-to-School season got off to a solid start in June.
- Leisure & hospitality hiring inexplicably fell by 61,000 jobs in June, after adding 40,000 workers in May. Given the success of the soccer tournament, the planned celebration of America250 and the significant decline in unemployment for less-skilled labor, it is unclear how this category shed jobs.
Happy Fourth of July, everyone! Here’s to another hugely successful 250 years!
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