US Economy Adds Jobs at Slower Pace, Unemployment Rate Drops to 4.2%

The US labor market cooled more than expected in June, with nonfarm payrolls rising by just 57,000 , well below the roughly 115,000 jobs economists had forecast. The unemployment rate ticked down to 4.2% , but the improvement was driven less by hiring strength than by workers leaving the labor force: the participation rate fell 0.3 percentage point to 61.5%, its lowest level since March 2021. Combined payroll counts for April and May were also revised lower by 74,000 jobs, underscoring that recent hiring momentum was weaker than initially reported.

The report paints a labor market that is still adding jobs but losing altitude. Professional and business services led gains with 36,000 positions, followed by social assistance (25,000) and health care (22,000), while leisure and hospitality shed 61,000 jobs, the sector's steepest drop as seasonal hiring came in soft. Wage growth remained firm even as job creation slowed: average hourly earnings rose 0.3% month-over-month to $37.64, up 3.5% over the past year, a pace that keeps consumer purchasing power intact but also complicates the inflation picture the Federal Reserve is watching.

The data lands just as the Federal Reserve weighs its next move. The FOMC held its benchmark rate at 3.50%-3.75% at the June 16-17 meeting, unanimously, and pared back language suggesting a bias toward cuts, with officials projecting the PCE price index ending the year near 3.6% versus a prior 2.7% estimate. With the next meeting set for July 28-29 (no updated economic projections at that gathering), a softer jobs report reopens the debate over whether cooling employment should outweigh still-elevated inflation. For now, markets are pricing a Fed on hold, likely to wait for the next full round of inflation data before shifting position in either direction.