US payroll growth slows, unemployment rises to 4.1%

The US labor market showed signs of cooling in June, with the unemployment rate ticking up to 4.1% as more individuals entered the workforce. The Bureau of Labor Statistics reported on Friday that nonfarm payrolls increased by 206,000, though job growth for the previous two months was revised down by a combined 111,000.

Wage growth also continued to decelerate, with average hourly earnings rising 3.9% year-over-year in June, marking the smallest annual gain in three years.

The increase in the unemployment rate and the downward revisions to payroll figures are notable indicators of a slowing labor market. Fed Bank of New York President John Williams highlighted that while inflation is approaching the Fed’s 2% target, achieving their goals remains a work in progress.

Despite the labor market data, traders are holding their positions on the likelihood of a Fed interest rate cut. September swaps continue to price in 18 basis points of easing, with the bond market largely waiting for further guidance from Fed Chair Jerome Powell and the upcoming June CPI data before making decisive moves.

Bond funds saw substantial inflows, with $19 billion added in the past week, the largest since February 2021, according to Bank of America Corp. and EPFR Global data. Additionally, cash funds recorded $51.9 billion in inflows, the biggest in two months, while global equity funds saw $10.9 billion, marking the longest streak of gains since December 2021.

Traders are also monitoring developments in the US presidential race closely. President Joe Biden faces a critical weekend in his political career, aiming to reassure voters, donors, and party officials amid concerns about his leadership. Any missteps could significantly impact his reelection campaign.