US jobs report shows a steady slowdown in the labor market

US markets remained unchanged but mostly higher on Friday afternoon following the latest employment snapshot from the government.

Overall, economists say the labor market is still strong and, though slowing, it is returning to normal after a white-hot pace over the past few years.

Traders were optimistic Friday about the slight uptick in the unemployment rate, which could indicate that the Federal Reserve may lower interest rates later this year.

“The Fed should be lifting a glass to and toasting a more normal (and no longer overheating) jobs picture,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a note Friday afternoon.

The S&P 500, meanwhile, is on track to close at yet another record high as all major indexes head toward a winning week.

The Dow was 50 points, or 0.1% lower.

The S&P 500 was up 0.4%.

The Nasdaq was 0.8% higher.

For the past few years, Federal Reserve officials said they wanted the labor market to get into better balance after the pandemic ushered in a red-hot labor market, which at its height had a whopping 12 million job openings coupled with an ultra-low unemployment rate. That caused employers to raise wages to attract workers, but in turn, helped usher in high inflation, prompting the central bank to raise rates.

Now, Fed officials are starting to get a taste of what they wished for. It might not end well, though.

Friday’s jobs report showed the unemployment rate rose to 4.1% in June, the highest level since November 2021. It also marked the second straight month that the unemployment rate rose.

Fed officials are currently wrestling with when to cut interest rates, which are at the highest level since 2001. They’ve intentionally kept rates high for a long time to slow economic growth in order to rein in inflation, which remains above its 2% target.

The problem, though, is that the Fed is notoriously bad at timing its rate cuts correctly. It’s no simple task, since there are so many unknowns about the economic outlook.

Still, if the unemployment rate continues to rise, that could mean the Fed left interest rates at an overly restrictive level for too long, and should have cut rates sooner to minimize the economic fallout.

The June jobs report gave off a “steady-as-she-goes” vibe, featuring slowing — but stable and strong — employment gains of 206,000.

However, the bulk of the month’s job losses came in a sector that’s often looked to as a canary in the coal mine: temporary help services.

That proverbial songbird’s tune just got a whole heck of a lot louder in June.

Temporary help services employment dropped 48,900 last month, according to Bureau of Labor Statistics data.

The temporary help category is often closely watched by economists as it could serve as a forward-looking economic data point in an otherwise lagging indicator: If companies are growing, they’ll often get temporary help until they can hire for a full-time position; but if times are tougher, the temp workers usually are the first to go.

Since 2022, the temporary help sector has added jobs in only four months; however, the drop-off in June is the biggest since April 2021.

The sharp decline in temporary help may be a sign that future weakness is ahead for the labor market this summer, Jack McIntyre, portfolio manager at Brandywine Global, wrote in commentary issued Friday.

“[A summer slowdown] clearly increases the Fed’s confidence level that policy rates are too restrictive, and they need to cut,” he wrote. “It is also taking longer for folks to find a new job, which might be a sign of future weakness in employment is in the offing.”

The batch of employment data released earlier this week appeared to portend not only that a further slowing in hiring was afoot but also that people were staying unemployed for longer.

Friday’s jobs report showed the same.

The median duration of unemployment jumped higher to 9.8 weeks from 8.9 weeks in May and landed at a level not seen since January 2023, BLS data shows.

That aligns with a trend seen in recent weeks from Labor Department claims data.

Continuing claims for unemployment benefits, which are filed by people who have received benefits for at least a week or more, rose 1.858 million during the week that ended June 22, marking their highest level since November 2021, according to Labor Department data released Wednesday.

Despite the recent upswing in unemployment duration as well as the unemployment rate, it’s important to note the historical context: The median unemployment duration is in line with what was seen in 2019; and the jobless rate remains below historical averages.

But what happens if the unemployment rate keeps moving higher?

“Now, if we start to get closer to 4.5%, am I going to be a little more concerned? Yes,” Gus Faucher, chief economist at PNC Financial Services Group, told CNN. “But I think we have the kind of labor market that we want to see over the longer run.”

Attendees shake hands at a Veteran Employment and Resource Fair in Long Beach, California, on January 9.

President Joe Biden and former President Donald Trump are both looking to win over Black voters in the presidential election, a demographic group that could be crucial in determining which candidate wins another term.

During last week’s debate, Biden made a point of touting the low unemployment rate for Black Americans, saying it’s the “lowest level it’s been in a long, long time.” That’s not true.

The Black unemployment rate rose to 6.3% last month from 6.1% in May. In April of last year, that rate dropped to a record low of 4.8%. The previous record was set during the Trump administration, when it was 5.3%.

Under both administrations, even when the Black unemployment rate fell to new record lows, it still exceeded the nation’s overall unemployment rate.

Trump, meanwhile, took a jab at Biden, saying he caused inflation “and it’s killing Black families.” (While inflation ramped up significantly since Biden took office, it’s incorrect to say he’s responsible for it all.)

Americans’ paychecks are growing at the slowest pace in three years.

Wage growth has slowed steadily over the past several months. US workers made $35 an hour, on average, in June, up 10 cents from May. From a year earlier, average hourly earnings were up 3.9% in June, down from the 4.1% annual rate in May and well below the 4.7% in June 2023.

Slowing wages help set the stage for the Federal Reserve to begin cutting interest rates — if it also ends up translating into slower inflation. Strong wage growth can put upward pressure on prices, but Fed officials have said they focus primarily on inflation gauges to know if price hikes are under control or not. It’s possible for workers to rake in robust wage gains if productivity is keeping up, but last year’s productivity burst lost some steam in early 2024.

A weakening job market with fewer job opportunities generally means that employers aren’t as motivated to jack up wages to lure talent. As the US economy rebounded from the Covid-19 pandemic, employers complained of persistent labor shortages, which prompted some to raise wages.

That’s no longer the case. Today’s job market is running at a slower pace, though wage growth is still above anything seen from 2007 to 2020, when the pandemic disrupted economic trends.

If you’re looking for a job, then a labor market with plenty of open positions and a low unemployment rate sounds ideal when compared to one in which there are fewer openings and a high unemployment rate. But what may seem ideal for job seekers is not necessarily in the best interest of the overarching economy.

How could that be?

When a lot of employers need to fill a lot of positions at the same time, they compete with one another for workers. To win over workers, employers tend to raise wages. That’s what has been happening for the past few years as the economy recovered from the pandemic.

But it’s been a double-edged sword, since it has fueled higher prices, given that workers had more money to spend. That prompted the Federal Reserve to raise interest rates to the highest level in more than 20 years, which has made it more expensive to get a mortgage and pay off other kinds of debts.

However, if there is an increase in the number of job seekers — which would be captured by a rising unemployment rate — employers don’t need to raise wages by as much — or even at all. That could help rein in inflation since it would mean businesses don’t have as much leverage to raise prices on goods and services.

Friday’s employment report, which showed the number of new hires fell to 206,000 last month from 218,000 in May, while the unemployment rate rose to 4.1% from 4%, demonstrates we could be getting closer to a “Goldilocks” labor market — neither too hot nor too cold.

In their biannual report to Congress, Fed officials said the labor market appears to be “similar to that in the period immediately before the pandemic, when the labor market was relatively tight but not overheated.”

Meanwhile, David Russell, global head of market strategy at TradeStation, said he believes we’ve already entered into a Goldilocks labor market. “The job market is bending without yet breaking, which boosts the argument for rate cuts,” he said in a note Friday morning.

“Things are not too hot and not too cold. Goldilocks is here and September is in play,” he added, referring to the Fed cutting rates at that meeting.

The Federal Reserve has kept interest rates elevated at a two-decade high for about a year now, waiting for more evidence that inflation is headed toward the official 2% target. Friday’s report shows that the job market is clearly weakening, but whether it will deteriorate more than expected or hold steady remains to be seen.

The unemployment rate rising to 4.1%, after it remained below 4% for more than two years, shows that more Americans are out of a job, which inherently means there’s a bit less demand in the economy. When someone loses their job, they are forced to cut back, or at the very least spend more cautiously. Consumer spending makes up about 70% of the US economy, and the spending data has come in softer in recent months. Rising unemployment bodes well for rate cuts, and the uncertainty over whether or not it will rise sharply is uncomfortable for the Fed.

Fed officials say they are still focused on fighting inflation, which remains well above target. But some officials have also said they are watching the labor market closely for any alarming signs, which could prompt them to act more quickly on cutting rates.

Wall Street’s best bet for the first rate cut remains September, according to the futures market. For that to happen, inflation must continue to cool in the coming months, but it doesn’t have to necessarily reach 2%. Fed Chair Jerome Powell has said they won’t wait for that to happen to begin cutting rates, but if slower inflation is accompanied by rising unemployment, then the first rate cut coming sometime in the fall would be a good bet.

Workers are seen on a construction site in Los Angeles on Wednesday.

When the economy adds a lot of jobs in any given month, the unemployment rate usually ticks down. That wasn’t the case in June.

Despite the 206,000 jobs added last month, the unemployment rate rose to 4.1% from 4% in May. The unemployment rate now is the highest it’s been since November 2021.

What gives?

By definition, the unemployment rate captures the share of unemployed people as a percentage of the labor force. The labor force is the total number of people employed and unemployed. To be considered unemployed, you don’t necessarily have to have been laid off recently.

The Bureau of Labor Statistics classifies someone as unemployed if they aren’t working but are available for work and made a specific effort in the past month to find a job. If they don’t satisfy that criteria, they aren’t considered part of the labor force.

Last month, the number of unemployed people rose by 162,000 to 6.81 million. But the number of people employed rose by 116,000 to 161.2 million. The net effect of that meant the labor force grew by 277,000 people to just over 168 million. So, mathematically, when you divide 6.81 million by 168 million, you’ll arrive at the 4.1% unemployment rate.

The monthly change in the number of employed people is different from the headline 209,000 jobs gains from last month — but that’s because that number comes from a separate survey that isn’t used to calculate the unemployment rate.

US stocks opened mixed but mostly unchanged following the release of the highly anticipated jobs report, which showed that 206,000 people were hired last month while the nation’s unemployment rate rose to 4.1% from 4%.

Treasury yields also retreated on the news, as investors anticipate a weakening jobs market might mean the Federal Reserve lowers interest rates later this year.

All three major indexes are tracking to finish the first trading week of the second half of the year higher.

The blue-chip Dow lost 80 points, or 0.2%.

The S&P 500 was less than 0.1% higher.

The tech-heavy Nasdaq was up 0.2%

Traders work on the floor of the New York Stock Exchange on June 28.

Investors are conflicted about Friday’s jobs data. While the increase in unemployment means that the Federal Reserve might lower interest rates later this year, it also indicates a softening economy and a weakening consumer base.

Here’s what Wall Street analysts are saying about today’s unemployment numbers.

Futures on the S&P, Nasdaq and Dow all rose slightly Friday after the release of the hotly anticipated monthly jobs report.

Treasury yields ticked lower as investors expect that the rise in unemployment could prompt Federal Reserve officials to cut interest rates this fall.

“The equity market may be a little conflicted how to respond to today’s jobs report. On one hand, the downward revisions to prior months and the rise in the unemployment rate raises the odds of a September Fed rate cut – bond markets are certainly celebrating this,” said Seema Shah, chief global strategist at Principal Asset Management, in a note Friday.

“But those same figures cannot help but prompt a twinge of concern about the direction of the US economy. The broad host of economic data all point to a softening – today’s report adds to that picture,” she added.

Dow and Nasdaq futures were each up 0.1% while S&P 500 futures were less than 0.05% higher.

Federal Reserve officials didn’t expect the nation’s unemployment rate to exceed 4% until next year, according to median projections they made at last month’s meeting.

The fact that the unemployment rate now is at 4.1% could potentially convince more Fed officials that a Septemeber rate cut is appropriate. It could also push officials to consider cutting rates more than once this year, which as of last month’s meeting was their expectation.

The Federal Reserve Board building is seen in Washington, March 2019.

America’s job market remains solid, but it has lost momentum over the past year.

The Federal Reserve is watching closely to see if it will continue to hold up or weaken more than expected.

Fed Chair Jerome Powell said this week at an economic forum in Portugal that the risk of inflation reaccelerating has come into better balance with the risk of the job market unexpectedly deteriorating. 

While officials “want to be more confident that inflation is moving sustainably down toward 2% before we start the process of loosening policy,” Powell said, “the labor market unexpectedly weakening is also something that could call for a reaction.”

San Francisco Fed President Mary Daly recently said that the job market is nearing an inflection point that “could translate into higher unemployment, as firms need to adjust not just vacancies but actual jobs.”

Economists are widely expecting the broader economy, including the labor market, to slow further in the second half of the year, but stop short of falling into a recession. 

Fed officials indicated in their latest economic projections that they expect to cut interest rates just once this year, which have been at a 23-year high for a year now. They also expect economic growth to remain healthy this year and for the unemployment rate in 2024 to settle at 4%. It rose to 4.1% in June, according to the Labor Department’s latest tally.

US Treasury yields have been on a wild ride since last week’s presidential debate, which raised the odds of former President Donald Trump winning the election, according to recent polls. In the immediate aftermath of the debate, yields rose sharply.

But following the release of Friday’s jobs report, which showed that 206,000 people were hired last month while the nation’s unemployment rate rose to 4.1% from 4%, Treasury yields started to retreat.

Immediately after the report was released at 8:30 am ET the yield on the 10-year Treasury fell to 4.29%. That’s because traders are hoping that a higher unemployment rate could push the Federal Reserve to roll out its first rate as soon as September.

The expectation of a September cut rose slightly Friday morning with a 72% chance of one, according to Fed fund futures. A week ago traders predicted a 58% chance of one.

Yields have since started to rise. At the close of trading on Wednesday, the yield was at 4.35%.

The unemployment rate rose to 4.1% last month from 4% in May, according to the jobs report released Friday morning.

November 2021 was the last time the unemployment rate was this high. At that time the economy was still recovering from the pandemic as Covid vaccines were in use. Meanwhile, there were more than 11 million job openings. As of May this year, there were around 8 million jobs available.

US job growth cooled as expected last month, but the labor market remained strong, according to Bureau of Labor Statistics data released Friday.

The US economy added 206,000 jobs last month, and the jobless rate unexpectedly increased to 4.1%.

Economists were expecting employers to have added 190,000 jobs and for the unemployment rate to remain at 4%.

Wall Street was quiet Friday ahead of the monthly jobs report.

S&P and Nasdaq futures were little changed and Dow futures were a couple of points lower.

It’s been a shortened week for traders, with markets closing early Wednesday and closed all day Thursday in observance of the July 4th holiday.

Investors are looking for another Goldilocks jobs report Friday that shows a gentle cooling-off of the labor market. Wednesday’s ADP data, which showed that private payrolls fell to 150,000, created little reaction among traders — but the government’s monthly tally will likely trigger more of a response.