Hiring Slows Dramatically in June in Warning Sign for Housing Market

June saw the U.S. economy add just 57,000 new jobs, falling well short of economists’ expectations, even as the national unemployment rate retreated slightly to 4.2%.

According to the latest report from the Bureau of Labor Statistics released Thursday, nonfarm payroll growth last month came in significantly below preliminary forecasts of 100,000 to 115,000 jobs.

The employment sectors that saw the biggest gains in hiring in June included professional and business services (+36,000), social assistance (+25,000), and health care (+22,000).

Meanwhile, leisure and hospitality suffered the greatest reversal in June, shedding 61,000 jobs after a major surge in May, due to what the federal reporting agency called “weaker than usual seasonal hiring.”

Employment showed little or no change over the month in other major sectors, including mining, construction, transportation and warehousing, financial activities, and government services.

April and May were revised down by a combined 74,000 jobs. April was revised from 179,000 to 148,000 payrolls, while May was revised down from 172,000 to 129,000 jobs, amounting to a moderate three-month average of 110,000 jobs.  

Although the June unemployment rate dipped to 4.2%, down from 4.3% in May, this was largely due to a decline in the labor participation rate, which measures the share of working-age people who are employed or seeking work.

The labor participation rate dropped to 61.5% in June, down by 0.3 percentage points from the prior month.

Average hourly earnings rose 3.5% year over year in June, edging up from 3.4% the previous month, but still running below the inflation rate.

Fed keeps focus on inflation

Realtor.com® senior economist Jake Krimmel says today’s jobs readout will do nothing to push the Federal Reserve under new Chair Kevin Warsh off its rate-cut pause, nor will it increase the likelihood of future reductions.

“Despite the downward surprise, there’s nothing in today’s report that reads as a true red flag or a warning sign for the labor side of the dual mandate,” says Krimmel. “Chairman Warsh has been focused far more on inflation than employment anyway, and today’s numbers, however soft the headline, don’t point to any worrying labor trends that could force the FOMC’s hand or even have them reconsider their stance.”

For the housing market, June marked a period of stability. Mortgage rates hovered steadily near 6.5%, while pending home sales rose for the seventh consecutive month and listings spent no more time on market than they did a year ago for the first time in 26 months, as reflected in Realtor.com June housing report.

“Now that we can see the summer job growth trend take shape, the labor market isn’t providing much of a tailwind for housing demand,” notes Krimmel. “But it isn’t a headwind either, and an unemployment rate ticking down rather than up, as some had expected, is a good sign.”

The economist adds that continuity in job growth is no small thing, especially against the volatile backdrop of rates, inflation, and uncertainty observed this spring.