What the June jobs report tells us about the state of the economy

The June jobs report came back a bit of a mixed bag. On the one hand, the U.S. economy added slightly more jobs than expected at 206,000. On the other hand, the unemployment rate ticked up to 4.1%.

It’s the first time the unemployment rate has been above 4% since late 2021. Analysts had expected unemployment to stay at 4% and anticipated around 200,000 jobs added.

The Bureau of Labor Statistics also revised the previous two months’ jobs data. April was revised down by 57,000 while May was revised down by 54,000, a combined 111,000 fewer jobs over two months.

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“The big downward revisions to April and May are the story,” Charles Schwab Chief Fixed Income Strategist Kathy Jones said on X. “Job market is slowing down.”

Historically, an unemployment rate of around 4.1% is strong. But since the economy has been below that for 2.5 years and reached a five-decade low of 3.4% unemployment in 2023, the upward trend is catching attention. 

The Federal Reserve last projected unemployment would be at 4% for 2024 and 4.2% for 2025, so already exceeding that 2024 number makes a rate cut look all the more likely. The Fed is now projecting one rate cut this year. The market is betting the Fed will hold steady for its July meeting and cut in September.

Back in May, Fed Chair Jerome Powell said there are two paths to cutting rates.

“That we do gain greater confidence that inflation is moving sustainably down toward 2% and another path could be unexpected weakening in the labor market, so those are paths in which you could see us cutting rates,” Powell said.

The Fed’s preferred inflation gauge shows prices rose 2.6% annually in May. The more widely-cited consumer price index shows a 3.3% rise in prices. Meanwhile, wages are outpacing inflation, rising 3.9% over 12 months in June, though the pace of wage gains is slowing.

While the latest jobs data still shows a robust labor market, it is softening from its status as one of the strongest labor markets in history. 

An unemployment rate between 4%-5% is considered “full employment,” which is when a country’s available labor is being used in the most efficient way. 

Full employment does not mean zero unemployment. Economists believe there needs to be some level of unemployment to minimize inflation and allow people to move between jobs, pursue education or improve job skills. The idea of full employment is that people looking for full-time work should be able to find it, although it might not be their preferred job.

But initial unemployment claims are trending up and the number of people who are unemployed for more than half a year is also climbing. More than a fifth of the unemployed fall under that category, while the median amount of time people are unemployed is nearly 10 weeks. One year ago, it was 6.4 weeks.