Jobs growth in the US slowed more than expected in June and was revised lower for the previous two months, in a sign the Federal Reserve’s aggressive interest rate rises are beginning to cool the labour market.
The US economy added 209,000 new non-farm jobs last month, lower than consensus forecasts of 225,000, though still comfortably above its pre-pandemic average.
Growth over April and May was also revised lower by a combined 110,000.
The unemployment rate, however, remained near a multi-decade low, falling back to 3.6 per cent after a slight rise in May.
Employment and wage growth are significant drivers of inflation, particularly in the services sector. Friday’s numbers will be scrutinised by investors, economists and central bank officials, who are watching for evidence that the Fed’s interest rate rises are beginning to affect the economy.
Although headline inflation numbers have started to trend downward, the labour market has proven resilient, with economists underestimating the strength of payrolls growth for 14 consecutive months before Friday’s data.
Hourly wage growth rose 4.4 per cent on an annual basis, well above the roughly 3.5 per cent rate that most economists think is consistent with meeting the Fed’s 2 per cent inflation target.
The central bank kept interest rates steady at its last policy meeting in June to give officials more time to take stock of the impact of its previous rate rises and the potential effects of recent turmoil in the banking sector.
However, policymakers have made clear that they are not yet done with their monetary tightening campaign, with most officials predicting two more quarter-point rate rises by the end of the year.
Futures markets were pricing in an almost 90 per cent chance of a rate increase at the Fed’s next meeting in late July before Friday’s data were released, and economists at Citi predicted that even a much lower headline figure of around 170,000 would be “still easily strong enough for the Fed to raise rates in July”.
Separate private sector jobs data published on Thursday reinforced those expectations, driving the yield on two-year Treasury notes to its highest level since 2007.
Still, Drew Matus, chief market strategist at MetLife Investment Management, said that “if [officials] were so certain they needed to move again, they would have done it at the last meeting. There has been some element of doubt in their minds about what they’re seeing.”
Additional reporting by Colby Smith in Washington
Source: Economy - ft.com
