US job growth expected to slow in June, unemployment rate forecast to rise

The U.S. labor market likely slowed further in June, with the unemployment rate expected to have edged up to more than a 3-1/2-year high of 4.3%, as economic uncertainty stemming from the Trump administration's policies curbed hiring.

The anticipated moderation in job growth will probably be insufficient to spur the Federal Reserve to resume its interest rate cuts in July, with the Labor Department's closely watched employment report on Thursday also expected to show solid wage gains last month.

The report is being published early because of the Independence Day holiday on Friday. A string of indicators, including the number of people filing for state jobless benefits and receiving unemployment checks, has pointed to labor market fatigue after a strong performance that shielded the economy from recession as the U.S. central bank aggressively tightened monetary policy to combat high inflation. Economists say President Donald Trump's focus on what they call anti-growth policies, including sweeping tariffs on imported goods, mass deportations of migrants and sharp government spending cuts, has changed the public's perceptions of the economy. Business and consumer sentiment surged in the wake of Trump's victory in the presidential election last November in anticipation of tax cuts and a less stringent regulatory environment before slumping about two months later.

"It's a very uncertain time," said Martha Gimbel, executive director of the Budget Lab at Yale University. "It's just hard for people to make decisions right now."

Nonfarm payrolls likely increased by 110,000 jobs last month after rising by 139,000 in May, a Reuters survey of economists showed. That reading would be below the three-month average gain of 135,000. Estimates ranged from a rise of 50,000 to 160,000 jobs. Average hourly earnings are forecast to jump 0.3% after advancing 0.4% in May. That change would keep the annual increase in wages at 3.9%.

Economists estimate the economy needs to create between 100,000 and 170,000 jobs per month to keep up with growth in the working-age population. They will be watching for revisions to the April and May data. Revisions this year have been skewed to the downside. Some economists speculated that small businesses were filing late responses to the establishment survey, from which the nonfarm payrolls are derived.

"Whatever the cause of the revisions, the established pattern means it makes sense to subtract about 30,000 from the first estimate of June payrolls and to focus on the trend rather than one month's numbers," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

Much of the slowdown in job growth reflects tepid hiring. Layoffs remain fairly low, with employers generally hoarding workers following difficulties finding labor during and after the COVID-19 pandemic.

RISING LAYOFFS

But layoffs are picking up and the lackluster hiring means fewer opportunities for those who lose their jobs, accounting for the anticipated uptick in the unemployment rate. A survey from the Conference Board last week showed the share of consumers who viewed jobs as being "plentiful" dropped to the lowest level in more than four years in June.

The expected rise in the jobless rate last month to the highest level since October 2021 would follow three straight months in which it held steady at 4.2%. Most economists expect the unemployment rate will continue rising through the second half of this year, and potentially encourage the Fed to resume its policy easing cycle in September. The Fed last month left its benchmark overnight interest rate in the 4.25%-4.50% range, where it has been since December. Fed Chair Jerome Powell on Tuesday reiterated the central bank's plans to "wait and learn more" about the impact of tariffs on inflation before lowering rates again.

"We are starting to see some important shifts that perhaps paint a worse light on the jobs market than most people have been thinking," said James Knightley, chief international economist at ING. "I don't think June's report is going to be weak enough to make the case for a July rate cut, but the risk is that the Fed is starting to think ... perhaps we need to put a bit more emphasis on where the jobs numbers are heading now."

Some economists, however, see limited scope for the unemployment rate to rise as the immigration crackdown shrinks the labor pool. With the White House having revoked the temporary legal status of hundreds of thousands of migrants, economists said fewer than 100,000 additional jobs per month would likely be needed to keep the jobless rate stable.

The healthcare sector likely continued to dominate the job gains last month. But leisure and hospitality employment could have been curbed by some migrants staying home in fear of being rounded up for deportation. Similar concerns could also have affected construction payrolls, while tariffs probably continued to weigh on manufacturing employment.

Moderate federal government job losses likely persisted. The administration's unprecedented campaign to drastically shrink the federal workforce has been tangled in legal fights.

"The mass of federal layoffs, the voluntary retirements and any reductions in force probably do not slow payrolls until October," said Michael Gapen, chief U.S. economist at Morgan Stanley. "Also, there has been little evidence yet of slower federal government hiring."