U.S. Employment (June 2026)

Payrolls cool in June, but unemployment rate falls to 4.2%  

• Nonfarm payrolls rose by 57k in June, lower than the Bloomberg consensus forecast of 113k. Revisions to the two prior months were 74k lower. 
  
  
  • Smoothing through volatility, payrolls averaged 111k over the last three months, stronger than the 42k averaged over the last twelve months.  
• Private payrolls rose 49k, slower than the 97k recorded in May. Job gains were concentrated in professional & business services (+36k) and health care & social assistance (+46.6k). Leisure & hospitality shed 61k last month, following a large jump the month prior. Meanwhile, government added 8k new positions.  
• In the household survey, the labor force plummeted by 720k, larger than the still hefty decline in civilian employment (-507k). As a result, the unemployment rate fell 11 basis points to a twelve-month low of 4.2%.  
• Average hourly earnings rose 0.3% month-on-month (m/m), pushing the year-ago measure to 3.5% (from 3.4% the month prior). 

Key Implications

• Payrolls moderated in June, following a string of exceptionally strong gains in each of the prior three months. The pullback hardly came as a surprise, especially given the large gains in leisure & hospitality and local government the month prior. That said, job growth is still considerably stronger than a year ago, and is also running slightly above the estimated breakeven rate, which helped to push the unemployment rate to a twelve-month low of 4.2%.    
• While the labor market has clearly turned a corner, this morning's weaker headline print combined with the downward revisions suggests it's stopping short of a full-blown reacceleration. Market odds for a July hike were completely pushed back following the release (a hike was 30% priced ahead of payrolls), with all eyes now turning to the June CPI (scheduled for July 14th). While a hotter reading could swing odds back in favor of a summer hike, we still think the bar for policy tightening is high. Today's policy rate remains somewhat in restrictive territory and provided inflation cools as expected in H2-2026, it will lead to a natural tightening in the real fed funds rate. 

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