Economic Commentary

Executive Summary

U.S. payrolls added 57,000 in June, roughly half of the consensus expectation for 113,000. Additionally, the May and April tallies were revised lower by -74,000. Still, the six-month average rose to 92,000 from 84,800 as the negative December print fell out of the six-month window.

Within the details, the unemployment rate fell to 4.2%, but hours worked and the pace of wage growth were unchanged. Moreover, the industry-level hiring mix was mixed and uneven, marked by an unusually large drop within leisure & hospitality.

Zooming out, while the headline jobs growth was underwhelming, it shows an improving trend, albeit inconsistent on a month-to-month basis. To wit, the solid six-month average for overall job growth coupled with the steady hours worked and wage growth reflect the ‘one foot on the gas, one foot on the brake’ dynamics within the U.S. economy. This report should also tamp down the perceived urgency by markets for the Federal Reserve (Fed) to hike rates. We remain solidly in the camp that the Fed will stay on hold in the near term.

Payroll trends – Government payrolls 

Service-providing industries hired 39,000, while goods producers added 10,000 workers. The biggest change is that government payrolls added 2,000 during the month, marking the first back-to-back gains since the first quarter of 2025. Of course, most of the declines over that span were on the federal level, as the federal government has only added jobs in 4 of the past 20 months.

Private payrolls rose by 49,000, pushing the six-month average up to 88,300 from 79,000 (after revisions). While that’s roughly half of the pre-COVID average, it still signals a cyclical upswing in the trend.

A review of the major industry trends

Leading the pack was health care, which accounted for two-thirds of the hiring within education & health services industry group. It’s notable that education services added 22,000, which is the most since September 2024.

Another positive signal has been the return of hiring in recent months by Temporary Help Services, which is categorized within profession & business services. Nearly 50,000 temps were added over the past six months, with hiring increasing in five of the six months. That’s following an ugly three-year stretch from early 2022 through 2025 whereby roughly 20% of temp positions disappeared, or half million fewer temp jobs.

On the downside, leisure & hospitality was exceptionally weak as restaurants and bars and hotels combined lost 55,000 workers during June. That seems out of step with the private sector reports we’re seeing, especially surrounding World Cup.

However, the report noted the recalculation of seasonal factors, which could be the cause of some unevenness on the industry level view of payrolls, particularly for leisure & hospitality.

Jobless rate fell, while wages and hours worked steady

The unemployment rate dipped to 4.2% and has steadily declined since it jumped to 4.5% in November 2025. It remains slightly above the pre-pandemic 3-year average of 4.0%, although it remains low compared to the historical average of 5.7% since 1948.

The broader underemployment rate (U-6) fell by 0.2 to 7.9% in June. That’s roughly the pre-pandemic 3-year average of 7.8% and has declined sharply since hitting 8.7% in November.

Part of the decrease in the unemployment and underemployment rates has been significant drop in the labor force, which declined for the 11th time in the past 21 months. The labor force has shrunk by just over one million workers, or -0.6%, in the past year.

Average weekly hours worked was 34.3, unchanged for the third straight month. It remains a tick below the pre-pandemic average of 34.4. Within manufacturing, hours worked also rose by 0.1 to 40.4, while overtime hours were unchanged at 3.0, where it’s been for the better part of three years.

Average hourly earnings rose by 0.3% month over month, maintaining the same pace as May. That’s slightly above the pre-COVID three-year average of 0.26%. Wages for all workers grew 3.5% from a year ago, which remains above the pre-pandemic average of 3.0%.

Wages for rank & file workers—officially known as production & nonsupervisory employees—rose 0.3% during the month, keeping the annual pace steady at 3.6%, which is also well above the pre‑pandemic 3.0% average.

Our take

Indeed, the June headline jobs growth was underwhelming, but we’re taking the softer print in stride. Our disappointment is tempered by the solid six-month average for overall job growth along with the steady hours worked and wage growth, and a drop in the unemployment rate. It’s also informed by the well-behaved trend for weekly jobless claims, which continue to hug pre-COVID averages. Together this shows an improving trend, albeit inconsistent on a month-to-month basis.

That’s rather remarkable given the repeated challenges that the U.S. economy has faced in the past six months; most notably, a roughly 60% spike in the nationwide average for gasoline. Among the factors that have helped offset the spike in energy prices for consumers have been significantly larger tax refunds and contained tariffs.

That said, the industry-level hiring mix has been mixed and uneven, marked by an unusually large drop within leisure & hospitality, though that could be related to rejiggering the seasonal adjustments. On the other hand, government payrolls appear to be stabilizing as the drag from Department of Government Efficiency (DOGE) initiative fades. Moreover, the pickup in temp hiring seems to mirror the improvement in manufacturing, which historically account for about a third of temporary workers.

Alas, the tenuous Iran situation remains a huge wildcard. At this point, the direction of inflation should see a significant downshift in the price of U.S. crude oil, which has literally round tripped and is roughly back to pre-Iran War levels thanks to the reopening of the Strait of Hormuz.

That inflation news, along with this report, should also tamp down the perceived urgency by markets for the Federal Reserve (Fed) to hike rates. It should buy the Fed some time to be patient following the overreaction by markets to price in rate hikes. We remain solidly in the camp that the Fed will stay on hold in the near term.

Bottom line

This report reflects a labor market that is still expanding but at an inconsistent pace, supporting our view that the economy remains in a “one foot on the gas, one foot on the brake” environment. Importantly, it should buy the Fed some time to be patient with inflation, reducing the pressure to raise rates in the near term.