The U.S. labor market weakened sharply in June, with job creation falling well short of expectations and raising fresh concerns about economic momentum heading into the second half of 2026.
Nonfarm payrolls increased by a seasonally adjusted 57,000 in June, significantly slower than the downwardly revised 129,000 jobs added in May and well below the 115,000 Dow Jones consensus forecast.
The unemployment rate edged down to 4.2%, but the decline came for troubling reasons rather than from genuine labor market strength.
The drop was largely driven by a slump in labor force participation, which fell 0.3 percentage point to 61.5%, the lowest level recorded since March 2021.
Household employment plummeted during the month, with 507,000 fewer people reported at work, a striking deterioration in one of the labor market’s most closely watched measures.
A broader unemployment measure that includes discouraged workers and those holding part-time jobs for economic reasons declined by 0.2 percentage point to 7.9%.
Prior months also saw significant downward revisions, with May’s total cut by 43,000 and April’s figure reduced by 31,000 to 148,000, painting a picture of labor market growth significantly slower than previously understood.
Average hourly earnings rose 0.3% for the month and 3.5% from a year ago, both figures landing in line with consensus forecasts and offering one of the few bright spots in the report.
Professional and business services contributed the most to June’s gains with 36,000 jobs added, while social assistance added 25,000 and healthcare employment rose by 22,000, a slower-than-normal pace for that industry.
Leisure and hospitality reported a loss of 61,000 jobs, which the Bureau of Labor Statistics said reflected slower-than-usual seasonal hiring, dashing hopes that the World Cup would provide a meaningful boost.
Goldman Sachs had estimated the World Cup could generate a gain of 40,000 jobs in the sector, but those anticipated benefits failed to materialize in the June data.
Government jobs rose by a modest 8,000, while most other employment categories showed little change during the month.
“The slowdown in payroll growth challenges the narrative of renewed labor market strength that has been building in recent months but, importantly, reinforces the view that the Federal Reserve is under little pressure to tighten policy,” said Seema Shah, chief global strategist at Principal Asset Management.
Stock market futures rose following the report as traders eased expectations for an interest rate increase as soon as September, with the policy-sensitive 2-year Treasury yield falling 3.5 basis points to 4.13%.
Fed Chairman Kevin Warsh, appearing Wednesday, described the jobs picture as “steady” while continuing to emphasize the importance of bringing inflation down to the central bank’s 2% target, which has remained out of reach for five years.
“For the Fed, this number is fine,” said Thomas Simons, senior economist at Jefferies, adding that “the pace of job growth is plenty strong enough to maintain a steady unemployment rate and average hourly earnings are solid, but not accelerating.”
Simons noted that “there is no imperative on their part to do anything with rates immediately, and the softening in the pace of job growth suggests that rate hikes are very unlikely to be necessary this year.”
Markets currently expect the Fed to stay on hold through the summer, with traders removing a potential September hike from their projections following the jobs number, though futures still point to a possible increase in October according to CME Group’s FedWatch gauge.
Warsh has repeatedly stated he is not committed to any particular policy path and has rejected offering forward guidance on where interest rates are headed during his tenure.
In related labor market news, initial jobless claims edged lower to a seasonally adjusted 215,000 for the week ended June 27, down 1,000 from the prior week and below the 220,000 forecast.
