The upcoming US employment report is projected to reveal a significant slowdown in hiring for June, coupled with a tapering off in wage growth. This report, highly anticipated by market watchers, is expected to offer new insights into the health of the labour market.
A Bloomberg survey's median estimate suggests that non-farm payrolls likely increased by 190,000 in June. Additionally, average hourly earnings are forecasted to have grown by 3.9% year-over-year, marking the smallest gain in three years. The Bureau of Labor Statistics is scheduled to release the full report this Friday.
The unemployment rate is expected to hold steady at 4%, maintaining its highest level in over two years.
This gradual cooling of the labour market aligns with the Federal Reserve's strategic outlook. The central bank is considering multiple interest rate cuts this year to sustain economic growth. Current futures market data indicates strong investor expectations that the Federal Open Market Committee (FOMC) will implement rate cuts during their September and December meetings.
"While headline payroll numbers might suggest that the Fed can afford to wait before cutting rates, the recent uptick in the unemployment rate indicates a more pressing need for action," noted Bloomberg economists Anna Wong, Stuart Paul, Eliza Winger, and Estelle Ou in a pre-release analysis.
"We believe the Fed will have sufficient evidence by the September FOMC meeting to justify starting rate cuts," the economists added.
In June, average hourly earnings are predicted to have risen by 0.3%, following an unexpected 0.4% increase in May. This would bring the annual growth rate below 4% for the first time since 2021, reinforcing confidence that inflation is on a downward trajectory.
The report is also expected to show that the unemployment rate remained unchanged at 4%, while labour force participation edged up to 62.6%, reversing the decline observed in May. The May drop was mainly among individuals aged 20 to 24 and those 55 and older. In contrast, participation among the prime working-age group (ages 25-54) rose in May to its highest level since 2002.
As the labour market shows signs of cooling, policymakers and investors alike will closely scrutinize these figures to gauge the future direction of economic policy and its broader impact on the economy.
