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US job growth slowed more than expected in June and was revised lower for the previous two months, a sign that the Federal Reserve̵[ads1]7;s aggressive rate hikes are starting to cool the labor market.
The U.S. economy added 209,000 new nonfarm jobs last month, lower than the consensus forecast of 225,000. Growth over April and May was also revised lower by a total of 110,000.
Unemployment remained close to a multi-decade low, but fell back to 3.6 percent after a small increase in May. Wage growth was also stronger than expected at 4.4 per cent on an annual basis.
Employment and wage growth are significant drivers of inflation, particularly in the service sector. Friday’s figures will be scrutinized by investors, economists and central bank officials, who are looking for evidence that higher interest rates are slowing the economy and lowering inflation.
Most economists expect hourly wage growth to fall to an annual rate of about 3.5 percent to be consistent with meeting the Fed’s 2 percent inflation target.
Drew Matus, chief market strategist at MetLife Investment Management, said “there are indications that things are slowing down . . . [but] The fall in the unemployment rate likely puts the Fed on track to raise interest rates at the end of the month, barring some sort of surprise between now and then.
Although headline inflation numbers have begun to trend downward, the labor market has proved resilient, with economists underestimating the strength of wage growth for 14 consecutive months ahead of Friday’s data.
Despite the slowdown in the latest data, June’s overall job growth remained higher than the pre-pandemic average. Hiring was particularly strong in the health, social care and construction industries, but fell in the retail trade.
The Fed kept interest rates steady at its June policy meeting to give officials more time to take stock of the impact of the previous rate hikes and the potential effects of the recent turmoil in the banking sector.
However, policymakers have made it clear they are not yet done with their monetary tightening campaign, with most officials predicting another two quarter-point rate hikes by the end of the year.
Friday’s data was not enough to convince investors that the Fed would change course, with futures markets still pricing in a more than 90 percent chance of a rate hike at its next meeting in late July.
US stocks opened lower on Friday morning, with investors buying US Treasuries after the jobs numbers. The two-year government yield, which moves with interest rate expectations, fell, reversing Thursday’s rise to a 16-year high after strong private payrolls data.
The S&P 500 fell 0.1 percent in early Wall Street trading, while the Nasdaq Composite rose marginally higher.
Stan Shipley, senior economist at Evercore, said the downward revisions to previous data “suggest that the economy is OK, but not booming in the same way it was six months ago”.
He added: “The Fed will probably still hike in July, because you have a falling unemployment rate . . . The question is about the Fed meetings after July.”
Additional reporting by Kate Duguid in New York and Colby Smith in Washington