（Singapore, 03.07.2026）U.S. job growth slowed sharply in June, while hiring estimates for the previous two months were revised lower, pointing to a cooling labor market and easing pressure on the Federal Reserve to raise interest rates in the near term.
According to Reuters, non-farm payrolls increased by only 57,000 jobs last month, well below economists’ forecast of 110,000. The Labor Department also revised April and May job gains lower by a combined 74,000, suggesting the labor market was weaker than previously reported.
At first glance, the unemployment rate appeared to improve, falling to 4.2% in June from 4.3% in May. However, economists said the decline was not necessarily a sign of strength, as it was mainly caused by 720,000 people leaving the labor force.
The labor force participation rate dropped to 61.5%, its lowest level since March 2021. Prime-age participation also fell, raising concerns that fewer people are either willing or able to work.
Economists said the report showed a labor market that is no longer overheating but not collapsing either. Many described it as a “low hire, low fire” environment, where companies are not aggressively adding workers, but layoffs remain relatively limited.
The weaker data quickly affected financial markets. Investors reduced expectations that the Federal Reserve would raise interest rates as soon as September. U.S. Treasury yields fell, the dollar weakened, while stocks initially rose as investors welcomed the possibility of a less aggressive Fed.
The Fed left its benchmark interest rate unchanged last month at 3.50% to 3.75%, but policymakers had signaled that borrowing costs may still rise this year due to persistent inflation.
The June jobs report could complicate that outlook. On one hand, slower hiring reduces the risk that wage growth will add to inflation. On the other hand, inflation remains above target, meaning the Fed may still be cautious about declaring victory too soon.
Average hourly earnings rose 3.5% from a year earlier in June, slightly faster than the 3.4% increase recorded in May. However, wages are still trailing inflation, with the Consumer Price Index rising 4.2% year-on-year in May.
Some economists said the slowdown may partly reflect the delayed impact of the Middle East conflict, which lifted gasoline prices and squeezed household budgets. Although fuel prices have eased after a fragile ceasefire between the U.S. and Iran, they remain above levels seen before the conflict began.
That pressure may be showing up in consumer-facing industries.
Leisure and hospitality employment fell by 61,000 jobs in June, the largest drop since the pandemic. Restaurants and bars cut nearly 33,000 jobs, while hotels and motels lost more than 21,000 positions, even though the FIFA World Cup was expected to support travel and tourism demand.
Professional and business services led to job gains, adding 36,000 positions. Social assistance added 25,000 jobs, while healthcare increased by 22,000, below its average monthly gain over the past year.
Construction added 11,000 jobs and manufacturing gained 3,000. Retail employment fell by 7,500, while the information sector lost 9,000 jobs. Financial services showed no job growth.
For Wall Street, the weaker jobs data may offer temporary relief. Stronger-than-expected hiring had previously raised fears that the Fed would need to tighten policy further, potentially hurting high-growth technology stocks that have led this year’s market rally.
Investors said the report gives the Fed more time to assess whether inflation or slowing growth is the bigger risk.
However, analysts warned against reading too much into one monthly report, especially as recent labor data has been volatile. June payroll figures are also often subject to large revisions.
Still, the latest numbers could renew debate inside the Fed over the true state of the labor market. A falling unemployment rate normally suggests strength, but when it is caused by people leaving the workforce, it can point to weaker economic momentum.
The decline in labor supply has also been linked by some economists to tighter immigration policies and an aging population. Since President Donald Trump returned to office, the U.S. labor force has fallen by about 1.3 million people.
The shrinking labor force is presenting a new challenge for Federal Reserve policymakers, who are assessing how many jobs the economy needs to generate each month as the pool of available workers continues to decline.
Economists said the latest report could revive debate within the central bank over whether weaker hiring reflects slowing economic demand or structural changes in the labor market, including an aging population and tighter immigration policies that have reduced labor supply.
Attention will now turn to upcoming inflation and employment reports, which are expected to provide further clues on the strength of the labor market and the Federal Reserve’s next policy move.
