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The US economy added 147,000 jobs in June, breaking through expectations and leading investors to scale back their bets on interest rate cuts.
Despite uncertainty over Donald Trump’s trade and immigration policies, Thursday’s figure from the Bureau of Labor Statistics surpassed both the upwardly revised 144,000 posts added in May and the 110,000 predicted by economists polled by Bloomberg.
The unemployment rate fell slightly to 4.1 per cent and the April jobs increase was revised higher to 158,000.
The unexpectedly strong figures will ease pressure on the US Federal Reserve to cut interest rates, despite the US president’s repeated calls for the central bank to do so.
The dollar climbed after the data publication as investors bet the Fed will lower rates more slowly than previously thought. The currency was up 0.5 per cent against a basket of rivals.
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Traders are now betting that there is a roughly 5 per cent chance of the US central bank lowering borrowing costs this month, compared with about 25 per cent before the jobs data.
“The numbers were much, much higher than expected,” said Andy Brenner, head of international fixed income at NatAlliance Securities.
“This takes a July cut off the table,” he added. “Even with a massive deceleration in [the consumer price index], you will not see a cut from the Fed in July. Even September now is somewhat in question.”
Fed chair Jay Powell has faced relentless pressure from Trump to lower borrowing costs. The president this week shared a handwritten note he had written to Powell saying his reluctance to cut rates had “cost the USA a fortune”.
On Tuesday, Powell indicated a July cut was not “off the table”, in an apparent reversal on his previous position that borrowing costs should be kept on hold until the autumn.
But below the headline figures, analysts sounded a more cautious note over the lack of turnover in the job market. The small drop in the unemployment rate was largely driven by people leaving the labour market rather than finding work.
“The household survey really shows a labour market that has very little churn,” said Diane Swonk at KPMG. “There’s a sense of a frozen jobs market and we’re not through the ice. The unemployment rate fell, but it fell for the wrong reasons.”
The two-year Treasury yield, which moves with interest rate expectations and inversely to prices, increased 0.09 percentage points on Thursday morning to 3.87 per cent.
The S&P 500 rose 0.4 per cent shortly after the opening bell in New York.
The rise in the headline employment figure came largely from an increase in healthcare jobs and an unexpected jump in those employed by US state governments after minimal growth over the past two years.
Federal government employment continued to decline in the wake of the cost-cutting drive led by Elon Musk, with jobs now down by 69,000 since January.
Florian Ielpo, head of macro at Lombard Odier Investment Managers, said the “bump” in state government employment “explains a significant portion of the increase above the consensus number”.
“So globally, not a bad report, but probably not as strong as initially suggested from the first read,” he said.
