U.S. Payrolls Beat Expectations in June with 147,000 New Jobs, Dimming Hopes for July Rate Cut
In a surprising show of strength, the U.S. labor market added 147,000 nonfarm payroll jobs in June, beating Wall Street expectations and sending a clear message to the Federal Reserve: the economy may not be ready for a rate cut just yet.
The Bureau of Labor Statistics (BLS) reported the June payroll number on Thursday, surpassing economists’ forecasts of 110,000 and slightly ahead of May’s upwardly revised figure of 144,000. April's total was also revised up to 158,000. This steady pace brings the 2025 year-to-date average to 146,000, signaling resilience in the face of ongoing economic headwinds.
Unemployment Falls, But Labor Force Shrinks
Despite job gains, the unemployment rate unexpectedly dropped to 4.1%, the lowest since February, versus a forecasted rise to 4.3%. However, this decline was largely due to a decrease in labor force participation. The participation rate dipped to 62.3%, the lowest since late 2022, with an increase of 329,000 people no longer counted in the labor force.
In the household survey, a separate measure used to calculate the unemployment rate, employment grew by just 93,000. Meanwhile, the number of people not looking for work in the past four weeks swelled by 234,000 to reach 1.8 million.
Job Gains Led by Government and Health Care
The public sector played a significant role in the June figures:
Government hiring soared by 73,000 jobs, primarily driven by a 40,000-job increase in local education.
Federal jobs declined by 7,000, as cost-cutting measures initiated by Elon Musk’s so-called Department of Government Efficiency continue to take effect.
Health care remained strong, adding 39,000 jobs, while social assistance roles grew by 19,000.
Other notable changes:
Construction gained 15,000 jobs.
Manufacturing saw a decline of 7,000.
Most other sectors saw little to no significant movement.
Wages and Work Hours Stay Stable
Average hourly earnings rose 0.2% in June, marking a 3.7% year-over-year increase—suggesting little wage-driven inflation pressure.
The average work week edged down slightly to 34.2 hours, possibly indicating some cooling in labor demand.
Markets React: Rate Cut Off the Table for July
Following the report, U.S. stocks rose and Treasury yields jumped, with market participants interpreting the strong labor data as a signal that a July interest rate cut is now unlikely.
“The solid June jobs report confirms that the labor market remains resolute and slams the door shut on a July rate cut,” said Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments.
Traders, who had previously priced in a 23.8% chance of a July cut, revised their expectations to just 4.7%, according to the CME FedWatch Tool. Now, markets expect the next rate cut in September at the earliest, with odds of three cuts in 2025 fading in favor of just two.
Trump Weighs In as Fed Pressure Mounts
In political news, President Donald Trump has once again called on Fed Chair Jerome Powell to resign, criticizing the central bank's reluctance to lower interest rates amid stable inflation. Despite these calls, Powell reiterated earlier this week that the Fed will continue to monitor economic data carefully and that no decision on cuts has been finalized.
Additional Data Points:
Initial unemployment claims for the week ending June 28 dropped to 233,000, down 4,000 from the previous week and below estimates.
According to the BLS establishment survey, full-time employment jumped by 437,000, while part-time employment fell by 367,000, showing a tilt toward more stable jobs.
Conclusion: A Sturdy Labor Market with Cracks Beneath
While the headline numbers paint a picture of a resilient economy, some economists caution against over-optimism.
“The US job market continues to largely stand tall and sturdy, even as headwinds mount — but it may be a tent increasingly held up by fewer poles,” noted Cory Stahle, economist at Indeed Hiring Lab.
Sectors like healthcare, social assistance, and education remain reliable engines of job growth, but private-sector hiring outside these areas remains tepid. The June jobs report may signal stability, but underlying labor force trends point to ongoing challenges.
