U.S. adds just 57,000 jobs in June, fueling rate-cut hopes

The U.S. added 57,000 jobs in June, well below the 110,000 consensus, as prior months were revised lower by a combined 74,000 — a sharp cooling that pushed stock futures higher and sent the 10-year Treasury yield down 4 basis points to 4.47%.

"The labor market is clearly losing momentum after a surprisingly strong May, and this gives the Fed cover to pause its tightening cycle," said James Okafor, macro analyst at Edgen. "The question now is whether this is a trend or a one-month blip."

The unemployment rate ticked lower to 4.2% from 4.3%, even as payroll growth slowed dramatically. Average hourly earnings rose $0.13 month over month, pushing the annual gain to 3.5%, while the average workweek held steady at 34.3 hours. Professional and business services added 36,000 jobs, accounting for the bulk of gains, while manufacturing added just 3,000. The leisure and hospitality sector, which led gains in May, posted a decline.

The miss reshapes the Fed's policy calculus. Before the release, CME FedWatch data showed a 63% probability of a rate hike by September. That pricing is now under pressure. If the July or August reports confirm this slowdown, the conversation could shift from "how high" to "how soon" for rate cuts — a scenario that would further boost equities and weigh on the dollar.

The Bureau of Labor Statistics also revised May's payrolls lower by 43,000 to 129,000 and April's by 31,000 to 148,000, pulling the three-month average down to 111,000 from 188,000. The BLS Diffusion Index, which measures the breadth of hiring across private industries, fell to 54.4% from 56%, with manufacturing bucking the trend by rising to 55.6% from 52.8%.

The last time payrolls came in this far below consensus was in August 2024, when the economy added 89,000 jobs versus expectations of 160,000. That report triggered a 50-basis-point rally in 10-year Treasuries over the following two weeks and pushed the S&P 500 up 2.3% as rate-cut bets intensified.

Gold climbed 1.6% to $4,094.45 an ounce, supported by the weaker labor data and a less hawkish tone from Fed Chair Kevin Warsh, who said at the ECB forum Wednesday that inflation expectations and risks had eased in recent weeks. Oil fell for a third consecutive day after Qatar said Iran and the U.S. had made progress in indirect talks over the Strait of Hormuz, with lower crude prices further tempering inflation worries.

For equity markets, the data presents a Goldilocks scenario — weak enough to revive rate-cut hopes but not so weak as to signal recession. The S&P 500 and Nasdaq both opened higher, with rate-sensitive sectors such as real estate and utilities leading gains. The 2-year Treasury yield, which is closely tied to Fed policy expectations, fell more sharply than the long end, reflecting a repricing of near-term rate expectations.

The next major data point for the Fed will be the July employment report, due Aug. 7, followed by the August consumer price index on Sept. 13. If both confirm the softening trend, markets could begin pricing a first rate cut as early as the September Federal Open Market Committee meeting.

This article is for informational purposes only and does not constitute investment advice.