June Nonfarm Payrolls Miss Estimates, Unemployment Drops But Wages Rise: Investors Assess Fed Path Ahead

The U.S. labor market continues to send mixed signals, as contrasting data emerged in the June jobs report, which are still likely to keep the Federal Reserve fully focused on the war against inflation.

In June, nonfarm payrolls (NFPs) rose by 209,000, according to the Bureau of Labor Statistics data, significantly missing economists’ expectations of 225,000. This figure represents a sharp decline from the revised lower 306,000 increase seen in May, signaling that the employment momentum softened last month.

This lower-than-expected reading comes on the heels of an impressive ADP National Employment Report, which showed an astounding 497,000 job gains in June.

The unemployment rate also ticked down as anticipated, from 3.7% to 3.6% in June, underscoring the continuation of historically low levels. Average hourly wages increased by 0.4% month-over-month, higher than expectations of 0.3%, while annual wage growth came in at 4.4%, topping estimates of 4.2%.

June’s Jobs Report: Key Takeaways

• The U.S. economy added 209,000 nonfarm payrolls in June, missing expectations of 225,000 and declining from the revised lower previous month’s 306,000 surge. The June’s figure was lower compared to the average monthly gain of 278,000 over the first six months of 2023.
  
• Among different industries, healthcare added 41,000 jobs, while new employment in leisure and hospitality was little changed at 21,000. Retail trade saw an employment loss of 11,000 in June, while employment in transportation and warehousing was negative by 7,000.
  
• The change in total nonfarm payroll employment for April was revised down by 77,000, from 294,000 to 217,000, and the change for May was revised down by 33,000, from 339,000 to 306,000.
  
• The number of unemployed people stood at 6 million in June, remaining below the number of job openings, which dipped to 9.8 million in May. With the number of available positions consistently surpassing the available workforce, the labor market is deemed tight according to one of the key gauges used by the Fed.

• Average hourly earnings on U.S. private nonfarm payrolls increased by 12 cents, or 0.4%, reaching $33.58 in June 2023.

Chart: NFPs Growth Declined In June

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Market Reactions:

After the release of June’s labor market report, traders adjusted their forecasts, decreasing the likelihood of a second rate increase in September (following the July hike) from 27% to 22%, as reflected in market-implied probabilities.

U.S. rate futures also pare odds of rate hike in November to 33% post-jobs, versus 40% just before.

Futures on the S&P 500 index, as monitored by the SPDR S&P 500 ETF Trust SPY, were flat for the day.

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.3%. 

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