June Jobs Report – US Economy Adds 372,000 Payrolls, Unemployment Rate at 3.6%

US JUNE JOBS REPORT KEY POINTS:

• U.S. employers add 372,000 payrolls in June, above expectations of a gain of 268,000 jobs
• The unemployment rate holds steady at 3.6%, in line with market forecasts
• Average hourly earnings advances 0.3% on a monthly basis, bringing the annual figure to 5.1% from 5.3% in May

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MARKET REACTION – UPDATED AT 8:55 AM ET

Immediately after the NFP report crossed the wires, U.S. Treasury yields rose on expectations that strong job creation will lead the Federal Reserve to continue raising rates aggressively to contain runaway inflation. Meanwhile, S&P 500 futures extended pre-market losses, down about 0.8% at the time of writing. The higher interest rate environment may undermine risk assets in the short term, but the the healthy labor market should limit the downside; after all, the data suggest that the economy is not yet on the verge of collapse, as many economists had feared.

S&P 500 FUTURES CHART

Source: TradingView

ORIGINAL POST AT 8:35 AM ET

The U.S. labor market remained robust last month despite a rapid cooling of economic activity, caused in part by tightening financial conditions in response to the Federal Reserve’s aggressive hiking cycle aimed at crushing rampant inflationary forces in the economy.

According to the Bureau of Labor Statistics, U.S. employers added 372,000 workers in June, above the expected forecast of 268,000, following a downwardly revised increase of 384,000 jobs in May. With this result, which can be considered healthy by all accounts given the late stage in the business cycle, the jobless rate held unchanged at 3.6%, signaling that the market is at or near full-employment.

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Separately, the establishment survey showed that average hourly earnings, a closely tracked inflation gauge, rose 0.3% on a seasonally adjusted basis, in line with Wall Street estimates. The annual rate, for its part, fell to 5.1% from 5.3% previously, a sign that wage pressures continue to ease. While slower nominal pay growth may be undesirable for Americans, it can be seen as a positive development in the battle to restore price stability.

MARKET DEVELOPMENTS

The U.S. economy has cooled rapidly in recent months, dented by tightening financial conditions and, above all, weakening consumer spending, amid four-decade high inflation. The rising cost of living has reduced household purchasing power, leading consumers to cut back on spending, the main driver of the country’s GDP.

There is little dispute that the Fed has exacerbated the slowdown. The central bank waited too long to begin normalizing policy and allowed inflation to broaden across the economy. When it became clear that the elevated CPI readings were not transitory, policymakers had no choice but to begin front-loading interest rate hikes, raising the risks of a hard landing.

Despite the mounting headwinds, hiring has held up well. Although the pace of job creation is clearly slowing, there is no strong evidence that the labor market is about to fall off the cliff. That said, if the employment picture remains healthy, consumption will not suffer significantly, a situation that could prevent a major economic downturn. Against this backdrop, the Fed will have room to continue raising borrowing costs forcefully if inflationary pressures do not abate in the coming months.