U.S. job growth decelerated more than anticipated in June, with payroll gains for the previous two months revised downward, indicating a cooling labor market. The Labor Department's employment report also showed the unemployment rate fell to 4.2% in June, a decrease attributed in part to approximately 720,000 individuals leaving the labor force, which pushed the participation rate to its lowest point in over five years.
Nonfarm payrolls increased by 57,000 jobs last month, following a revised gain of 129,000 in May. This figure fell short of the 110,000 jobs economists had forecast. The payroll count for April was also revised down by 31,000 jobs to 148,000. This moderation brings payroll figures into alignment with other labor market surveys that have presented a less robust picture of job creation.
Pedestrians walk by a "Now Hiring" sign at an electronics store in Dallas, Thursday, Aug. 28, 2025.
The decline in the unemployment rate from 4.3% in May was foreshadowed by a Conference Board survey indicating that the proportion of consumers viewing jobs as "hard to get" was near a 5-1/2-year high in June. Economists estimate that the economy needs to create between zero and 50,000 jobs per month to keep pace with population growth. The labor force participation rate decreased to 61.5% in June, the lowest level recorded since March 2021.
Financial markets reacted to the report by reducing expectations for an imminent interest rate hike from the Federal Reserve. Traders now price in a slimmer chance of a hike in July, while continuing to view a September increase as likely, with short-term interest-rate futures reflecting about a 60% chance. This sentiment is down from approximately 75% before the jobs report was released.
Despite economic uncertainties, including geopolitical conflicts, companies have been hesitant to lay off workers after experiencing labor shortages in the wake of the COVID-19 pandemic. Professional and business services saw the largest job gains in June, adding 36,000 positions. Social assistance employment increased by 25,000, and healthcare payrolls rose by 22,000. In contrast, leisure and hospitality employment decreased by 61,000.