US NFP Miss: 57k Jobs, Participation Falls, Wage Growth Holds

Nonfarm payrolls rose just 57,000 in June, sharply below the 114,000 consensus estimate. The May gain was revised down to 129,000 from the initially reported 172,000, pushing the three-month average below the 100,000 level that economists often treat as a threshold for a still-healthy labor market.

The unemployment rate edged lower to 4.2% from 4.3%. The decline came entirely from a 0.3 percentage point drop in the labor force participation rate to 61.5%. Fewer people actively looked for work, so the jobless rate fell without an acceleration in hiring. The number of employed persons actually decreased slightly over the month.

Wage growth did not soften. Average hourly earnings rose 0.3% month over month for a second straight month, lifting the annual rate to 3.5% from 3.4%. That pace of wage increases is above the pre-pandemic average and complicates the Federal Reserve's reading of the labor market. Slowing payroll growth alone does not remove inflation risk if wage pressure persists.

The report gives the Federal Reserve a mixed set of inputs. Hiring momentum has clearly faded. The revisions mean the three-month average is now below 100,000 for the first time since early 2024. At the same time, a falling jobless rate and steady wage gains do not signal a rapidly deteriorating labor market. A rate hike at the July meeting now looks less probable than the market had priced after the May data. A rate cut remains distant absent a clear weakening in inflation or a sharper rise in unemployment.

That view aligns with the expectations outlined in the USD Rates Outlook: Goldman Sachs Expects Fed to Stay on Hold Through 2026, where rate strategists see the Fed holding steady through next year.

Traders now focus on whether the slowdown in hiring is structural or driven by temporary factors. The participation drop suggests a tighter labor supply rather than a collapse in demand. That distinction matters for the Fed's reaction function. If weakness deepens into the July employment report, the case for a cut builds. If wage growth accelerates further, the door for a last hike stays open.

The next scheduled data point is the July nonfarm payrolls report. The CPI print for June is due next week and will test whether the soft hiring data is accompanied by moderating price pressures.