The US labor market slowed more sharply than expected in June. As a labor market that had remained resilient despite inflationary pressure from the Middle East lost momentum, observers say the timing of the Federal Reserve's rate hike could be pushed back somewhat.
The US Bureau of Labor Statistics said Wednesday that nonfarm payrolls rose by 57,000 in June from the previous month. That fell well below the consensus estimate of 113,000 compiled by Bloomberg. The May increase was also revised down to 129,000 from the previously reported 172,000. Following the data release, US Treasury yields fell sharply, dropping back below 4.5%.
The US labor market had maintained a stronger-than-expected trend even as concerns over deteriorating employment emerged following a surge in energy prices after the war in Iran. But in June, job growth slowed sharply, and analysts say signs of a labor market slowdown have become clear. "As high prices dampen consumer sentiment, companies are also taking a cautious stance on hiring," Bloomberg said. "The June employment slowdown was largely driven by job losses in the retail and information technology (IT) sectors, centered on leisure and hospitality."
The unemployment rate edged down to 4.2% from 4.3% the previous month, matching market expectations. The labor force participation rate was 61.5%, down 0.3 percentage point from 61.8% the previous month.
As a result, the likelihood of a Fed rate hike appears to have weakened somewhat. According to the Financial Times (FT), participants in the interest rate futures market have begun to price in a delay of the Fed's rate hike to December from the previous October. The weaker-than-expected employment data is bolstering the view that the Fed will take a cautious approach, checking additional data. Fed Chair Kevin Warsh attended the European Central Bank forum held in Sintra, Portugal, on Tuesday, where he assessed that inflation risks had eased somewhat recently.
