June jobs show economy well-balanced

The US labor market remained strong in June, despite ongoing concerns about a potential slowdown, which were exacerbated by initial data from employment services firm ADP. The economy added 147K jobs during the month, ahead of the 106K expected and in line with the 139K added in May. Of these, 74K were added to private payrolls and 73K were added to government payrolls—particularly in state and local governments—as the federal government has been shedding workers.

The unemployment rate fell to 4.1% from 4.2%, although part of the reason for this decline was a slight drop in the labor force participation rate to 62.3% from 62.4%. Average hourly earnings rose year over year by 3.7%, slightly below both May’s figures and expectations.

Overall, the picture of the economy remains the same. The labor market is solid, underpinning consumption and other economic activity. It appears to be at a stable equilibrium.

Implications for the Fed

Market expectations for a rate cut in July fell from 25% to 7% on the news, as the stable labor market means the Fed can wait until September to see the impact of tariffs before resuming their rate-cutting cycle. Unless the economy weakens, the FOMC will not feel any urgency to cut rates. We believe they *could* cut rates if they wanted to—equilibrium in the economy suggests the policy rate should be moved to equilibrium as well. If it were not for wanting to see the impact of tariffs, they would be cutting now.