US economy adds 206,000 jobs but unemployment rises

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The US labour market showed signs of cooling, with the unemployment rate rising even as the pace of jobs creation slowed by less than expected.

The US economy added 206,000 jobs last month, the Bureau of Labor Statistics said on Friday, more than the 190,000 roles economists polled by Reuters had forecast. May’s figure was revised down to 218,000.

Friday’s non-farm payrolls report also showed that the US unemployment rate increased to 4.1 per cent from 4 per cent, its highest level since November 2021.

The US labour market’s resilience over the past two years has afforded the Federal Reserve the time to take a cautious approach to lowering borrowing costs as it sought to tame inflation. With price pressures easing, the central bank is closely monitoring employment conditions to help guide its decision on when to commence an interest rate cutting cycle.

Friday’s data comes just days after the minutes of the central bank’s June meeting showed that members of the rate-setting committee were becoming more attentive to the downside risks to the US labour market.

“Numbers like this will raise eyebrows at the Fed and spur a discussion about whether rates are too restrictive and are threatening the expansion,” said Robert Tipp, head of global bonds and chief investment strategist at PGIM Fixed Income.

Tipp said that “what looked like a boring report” showed “a few factors” were contributing to a softening trend in the domestic jobs market that could facilitate rate cuts by the Fed later this year.

“Downward revisions to previous months, the high proportions of healthcare and government jobs, cuts to temporary workers, and a weak household survey — this all points to a picture of moderation in the labour market,” he continued.

The BLS revised May’s non-farm payrolls figure down to 218,000 from 272,000 previously, while April’s figure was revised lower by 57,000. That meant employment in those two months was 111,000 lower than previously reported.

Treasury yields dropped to their lowest levels in several months following the release of June’s softer payrolls data, which traders bet could allow the Fed to cut interest rates twice this year.

The two-year Treasury yield, which is sensitive to monetary policy expectations, fell by 0.06 percentage points to 4.63 per cent after the release, its lowest level since early April. Traders are pricing in roughly two interest rate cuts this year, with the first coming by November.

The S&P 500 was up 0.1 per cent shortly after Wall Street’s opening bell on Friday.

Eric Winograd, senior economist for fixed income at AllianceBernstein, said he did not think the latest jobs report changed the fundamental picture of the domestic economy.

“The report is weaker than expected because of the revisions downwards to the past two months. Now May and June are basically in line. But this is not a labour market that is falling off a cliff.”