US job growth slows sharply in June, easing pressure on Federal Reserve

The US economy added far fewer jobs than expected in June, signalling a slowdown in hiring as employers turned more cautious, while a fall in labour force participation pushed the unemployment rate down despite weaker employment growth.

According to the US Bureau of Labor Statistics, nonfarm payrolls increased by 57,000 in June, well below economists' expectations of 115,000 and sharply lower than the downwardly revised gain of 129,000 in May.

The unemployment rate fell to 4.2% from 4.3% in May. However, the decline was largely driven by fewer people participating in the labour force rather than stronger hiring. The labour force participation rate dropped 0.3 percentage point to 61.5%, its lowest level since March 2021, while household employment fell by 507,000 during the month.

The report also revised down hiring figures for previous months. Payroll growth in May was lowered by 43,000 jobs, while April's total was revised down by 31,000 to 148,000, suggesting the labour market has been weaker than previously estimated.

Average hourly earnings rose 0.3% in June and were up 3.5% from a year earlier, matching market expectations and indicating wage growth remained steady.

Professional and business services led job creation with an increase of 36,000 jobs. Social assistance added 25,000 positions, healthcare employment rose by 22,000, and government payrolls increased by 8,000.

The biggest drag came from the leisure and hospitality sector, which lost 61,000 jobs. The Bureau of Labor Statistics attributed much of the decline to slower-than-usual seasonal hiring.

Financial markets welcomed the report, with US stock futures rising as investors scaled back expectations of further interest rate increases. Treasury yields also declined after the data.

The jobs report comes a day after Federal Reserve Chair Kevin Warsh said inflation risks had moderated in recent weeks while reiterating the central bank's commitment to bringing inflation back to its 2% target. Warsh, however, declined to provide guidance on the future path of interest rates.

Separately, initial jobless claims fell by 1,000 to 215,000 in the week ended June 27, slightly better than market expectations, indicating layoffs remain relatively subdued despite slower hiring.

The June employment report is likely to strengthen expectations that the Federal Reserve will leave interest rates unchanged over the coming months, with investors now seeing a lower probability of another rate hike in the near term.