June payrolls add 57,000 jobs — about half of forecasts

World Cup tourism boost fails to materialize; September rate-hike bets fade

The New York Stock Exchange. [Getty Images]
The New York Stock Exchange. [Getty Images]

By Seo Ji-yeon, The Herald Business

A sharper-than-expected slowdown in US job growth in June has eased pressure on the Federal Reserve to tighten policy further, analysts said. American equity markets, rattled in recent weeks by fears of additional rate hikes, also appear to have bought themselves breathing room to extend their rally.

The Bureau of Labor Statistics said Wednesday that nonfarm payrolls rose by just 57,000 in June, roughly half the 115,000 gain markets had forecast according to a Dow Jones survey. Job gains for April and May were also revised down by a combined 74,000.

US employment had been running hotter than expected in the preceding months — payrolls rose by 214,000 in March, 148,000 in April and a revised 129,000 in May — fueling speculation that the Fed might raise rates again. The June figures, however, signaled that the labor market may be cooling from an overheated state. Reuters said the jobs report had delivered a result that "bought time" for both the Fed and financial markets.

By sector, professional and business services added 36,000 jobs and social assistance gained 25,000. Healthcare added 22,000, below its average monthly gain of 38,000 over the past year. Leisure and hospitality shed 61,000 jobs, dragging down the overall total. Wall Street had expected the sector to benefit from a tourism and services boost tied to the North and Central America World Cup, but those expectations went unfulfilled.

The unemployment rate edged down to 4.2 percent from 4.3 percent the previous month, though analysts noted the decline partly reflected a drop in the labor force participation rate, which fell to 61.5 percent from 61.8 percent. Average hourly earnings rose 0.3 percent from the prior month and 3.5 percent from a year earlier, in line with forecasts.

Financial markets moved quickly to price out the possibility of an imminent Fed rate hike after the report. US stocks rose early in the session but gave back most of their gains, and the dollar weakened. The yield on the two-year Treasury note fell. According to the CME FedWatch tool, fed funds futures markets raised the probability of rates remaining unchanged through year-end to 22 percent from 17 percent the day before, while the probability of at least one rate hike this year fell to 78 percent from 83 percent.

Adam Sarhan, CEO of New York-based asset manager 50 Park Investments, said the report had alleviated fears that the Fed would move immediately to raise rates. "The risk of inflation has not disappeared, but the near-term pressure on the Fed to tighten has eased," he said.

Markets had grown increasingly jittery in recent weeks after the Fed held its benchmark interest rate steady last month while signaling that further hikes remained possible. Technology stocks in particular came under pressure amid concerns that higher rates could weigh on richly valued companies at a time when AI investment competition is driving a surge in corporate borrowing and capital expenditure.

Anshul Sharma, chief investment officer at Savvy Wealth, said that if the labor market continues to cool and inflation remains in check, expectations for a more accommodative Fed policy would strengthen. "That could be a positive for equities at current levels," he said. He added that companies valued on long-term growth prospects — such as technology stocks — stood to benefit most if rate pressures ease.

Experts cautioned, however, that a single jobs report was not enough to draw firm conclusions about the direction of monetary policy. With employment data showing high volatility in recent months, and with many economists already expecting the Fed to hold rates steady for the rest of this year, market rate expectations could shift further in the months ahead.

While the jobs slowdown could serve as a near-term tailwind for stocks, corporate earnings and AI investment momentum remain the key variables shaping the market's longer-term direction.


sjy@heraldcorp.com