What to Watch in the U.S. Government’s June Jobs Report

A key government report is expected Friday showing that job growth slowed in June but remained steady, as analysts increasingly believe the U.S. economy is headed for a “soft landing.”

Recent economic signals show that the labor market is normalizing:

  • The country’s unemployment rate has been at or below 4% for 30 months.
  • Employment growth averaged 277,000 in 2024, compared with 251,000 the year before and 165,000 in 2019, before the pandemic hit the economy hard in 2020.
  • While the number of vacancies is still higher than in 2019, there is a decline. Economists call this a more usual balance between employer demand and the number of available workers.
  • Companies have announced plans to cut about 435,000 jobs this year, down 5% from the same period in 2023, according to outplacement firm Challenger, Gray & Christmas.
  • Wage pressures continue to decline, giving companies more opportunities to lower prices.

What to look for

Analysts are looking for signs that the pace of employment is slowing, consistent with the slowing inflation. But they hope not too fast, or else concerns about a severe recession could rise again.

Analysts polled by FactSet predict that employers created 192,000 jobs last month, compared with 272,000 in May. A substantial slowdown in hiring in June earlier this year would send the economy into a deeper tailspin, as the Federal Reserve hopes. Starting in 2022, the Fed raised interest rates to their highest level in decades in an effort to dampen growth and rein in inflation.

The unemployment rate in June is expected to remain steady at 4%, which would indicate steady job growth. For that reason, Elise Gould, an economist at the Economic Policy Institute, noted in a report that the unemployment rate for young adults is now the same as it was before the pandemic.

Monthly wage growth in June is also expected to cool to 0.3%, down from 0.4% in the previous month, which would be in line with other recent data suggesting that inflation is gradually decreasing.

When will the Fed cut rates?

The Fed’s central challenge in nursing the economy back to health after the pandemic is to balance supply and demand for workers without plunging the economy into recession. And so far, the central bank has largely defied critics who predicted that aggressive monetary tightening would lead to a crash.

“The labor market has really proven the skeptics wrong,” said Andrew Flowers, chief economist at Appcast, a company that uses technology to help companies recruit employees.

In remarks in Sintra, Portugal this week, Fed Chairman Jerome Powell said inflation is slowing again after a flare-up earlier this year, the Associated Press reported. The personal consumption expenditures index — a key indicator closely watched by the Fed — fell in May slowed to smallest annual increase in three yearsincreasing the likelihood that the central bank will cut interest rates by the end of the year.

That doesn’t mean policymakers are ready to give up the fight against inflation altogether. Powell stressed that central bankers still need more data showing annual price growth is moving closer to the Fed’s 2% annual target, and he warned that cutting rates prematurely could reignite inflation.

“We just want to make sure that the levels we see are a true reflection of underlying inflation,” Powell said.

Minneapolis Fed President Neel Kashkari says economy may be “cooling” under “high pressure”

Most economists expect Fed officials to leave rates unchanged when they meet in late July, with a quarter-point cut likely in September.

“The Fed is increasingly aware of the downside risks to the labor market, which adds to our confidence in the forecast that the first rate cut in this easing cycle will come in September,” said Ryan Sweet, chief U.S. economist at Oxford Economics, which also expects another Fed rate cut in December.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, also expects a quarter-point cut in September. That could be followed by deeper cuts in November and December, but only if the labor market weakens more than the Fed currently expects.

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