US job growth at its weakest in over two years

Last month, US job growth decelerated, signaling that the impact of higher interest rates might be starting to impede the growth of the world’s largest economy.

According to the Labor Department, employers added 209,000 jobs in June, marking the smallest increase in over two years.

Despite falling below expectations, the unemployment rate declined to 3.6% in June, down from 3.7% in May.

The labor market is under close observation as the US central bank raises borrowing costs to combat inflation.

Despite the Federal Reserve’s benchmark interest rate surging to over 5% within a short span of one year, hiring has continued to exhibit strength.

Analysts noted that in June, despite being the smallest figure since December 2020, the addition of 209,000 jobs was considered sufficient to accommodate the growth in the labor force.

Average hourly pay saw a 4.4% increase compared to the previous year, indicating a continued upward trend in wages.

The monthly report is accompanied by additional data, including a decline in job vacancies, indicating a potential cooling of the labor market. Richard Flynn, Managing Director at Charles Schwab UK, commented, “Today’s jobs report is slightly weaker than anticipated by many.”

“The labor market remains tight, yet investors may interpret these figures as a sign of emerging vulnerabilities.”

Economists have been forecasting a slowdown for months, attributing it to higher interest rates leading consumers to reduce spending in various sectors and making borrowing for business expansions more expensive.

Despite these expectations, jobs growth consistently exceeded forecasts, and a robust employment report from private payrolls processor ADP earlier in the week heightened anticipation for a similar outcome.

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The release of ADP figures on Thursday sparked a sell-off in shares as investors recalibrated their expectations regarding the extent to which interest rates may need to rise.

Nonetheless, the Labor Department report provided a slightly contrasting perspective, indicating that government and healthcare sectors played a significant role in driving job growth during June.

Retailers and transportation companies experienced job losses, while the leisure and hospitality sector added a modest 21,000 positions, keeping overall employment in that industry below pre-pandemic levels.

Analysts maintained their expectations of another interest rate hike by the US central bank at its upcoming meeting this month.

While US inflation has significantly declined since the previous year, currently standing at 4%, it remains above the Federal Reserve’s target of 2%.

Projections released by the bank during its previous meeting indicated that a majority of officials believed it would be necessary to raise interest rates further in order to stabilize prices.

Seema Shah, Chief Global Strategist at Principal Asset Management, commented, “While jobs growth has slowed, it remains robust and does not support an extended pause by the Federal Reserve.

Moreover, the unexpected positive surprise in average hourly earnings indicates that wage pressures continue to be significant. Today’s report provides little reason for the Fed to delay hiking rates at the upcoming July meeting.”

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