US job growth outpaced expectations in June, with nonfarm payrolls rising by 147,000, a sign of resilience in the labor market that may delay the Federal Reserve’s timeline for cutting interest rates.
The unemployment rate ticked down to 4.1% from 4.2% in May, beating forecasts for a rise to 4.3%. Average hourly earnings climbed 0.2% on the month and 3.7% year-over-year, both slightly softer than expected.
Weekly jobless claims also came in lower than anticipated at 233,000, while continuing claims stood at 1.964 million.
“Today’s jobs report was much better than expected, especially coming on the heels of a disappointing ADP employment report yesterday,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “Given the strong jobs numbers… the Fed is much less likely to cut rates this month than many were talking about earlier this week.”
The June data showed healthcare remained a pillar of job creation, adding 39,000 positions, in line with its average monthly pace. But hiring remained tepid across most other industries, and federal government employment declined by 7,000 jobs.
“June payrolls grew by 147,000 after rising a revised 144,000 in May,” noted Jeffrey Roach, chief economist at LPL Financial. “If businesses keep expanding payrolls like they’ve done so far this year, the Fed can comfortably sit in ‘wait and see’ mode at the upcoming policy meeting.”
Roach added that trade uncertainty “has apparently not spooked businesses into shedding workers,” but warned that “the administration is still actively negotiating details with several major trading partners and the eventual business impacts are unknown.”
Despite the headline strength, Wells Fargo analysts flagged signs of labor market cooling, noting that job gains were narrowly concentrated and that the drop in the unemployment rate partly reflected a decline in labor force participation.
“The details were less encouraging… generally consistent with a cooling labor market,” the bank said in a note. “Today's data make a rate cut at the July FOMC meeting quite unlikely, in our view. But we think the ongoing cooling… should keep the Fed on track to start cutting rates at its September meeting.”
Markets have recently recalibrated expectations for Fed policy amid shifting data and political developments. Zaccarelli said the extension of tax cuts and potential tariff hikes—once the current 90-day pause expires—further complicate the Fed's decision-making.
“Instead, the Fed is likely to wait until later in this quarter or even until the fourth quarter before they cut interest rates,” he said. “We are concerned that valuations are high… so the market is much more vulnerable to negative surprises at this point.”
Eric Teal, chief investment officer at Comerica Wealth Management, said shifting labor demographics could also play a role in the Fed’s thinking.
“Immigration has been a big part of the labor supply, and as these demographics shift, we anticipate the unemployment rate to continue to ratchet lower with the potential to put upward pressure on wages,” Teal said. “Thus, we continue to anticipate rate cuts are a ways off until we gain clarity that inflation is contained.”