During the first six months of the year, the initial estimate of U.S. hiring has featured large rolling revisions, both up and down, which in turn have reduced the value of the top-line monthly number.
The downward revision of 74,000 to the previous two months that was included in the release of the June jobs report on Friday reinforces that point.
For this reason, we would recommend taking the report of 57,000 new jobs created in June with a grain of salt. Expect an upward revision to the top-line June estimate when the July data is released.
In our estimation, the Bureau of Labor Statistics has simply traded a large annual benchmark revision—which it will continue to provide—for a series of monthly revisions, which places more value on the three-month average of 111,000 jobs created or the six-month average in hiring of 92,000.
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If monthly noise is the primary takeaway from the June jobs report, then look no further than the decline in the monthly unemployment rate of 4.189%, which is reported as 4.2%. That decline happened because of an exit of 720,000 workers from the labor force.
The household survey, from which the unemployment rate is derived, showed a decline of 507,000 workers in June.
One gets the sense that the decline to 4.189% should also be discounted as we expect an upward migration in the unemployment rate next month back to 4.3% as those the top-line employment numbers in both the establishment and household surveys are revised upward.
Hiring at a 111,000 three-month trend is more than double what is necessary to keep the labor market stable and maintain the economic expansion.
While the early Memorial Day likely pulled forward some hiring in leisure and hospitality, which can partially explain some of the large revisions in that sector, that does not adequately explain the monthly rolling revisions and the softer-than-anticipated top-line increase.
Compared with our long-run breakeven rate of around 25,000 to 40,000 jobs per month, June’s jobs report still suggests the labor market remains strong, suggesting that the Federal Reserve will focus on containing inflation rather than maintaining maximum sustainable employment.
Policy implications
The softer-than-anticipated gain in employment will on the margin result in investors easing back recent hawkish expectations on the probability of a near-term rate hike.
Given the new communications framework at the Fed, which features less forward guidance, we strongly recommend that chief financial officers, portfolio managers and investors reduce monthly exposure to the initial estimate of hiring and focus on the three- and six-month trends.
Because of the nearly 40% decline in the price of oil amid a more restrained hiring trend, the Fed can remain on hold at its meeting on July 29 while it watches how inflation responds to the drop in energy prices.
The data
The June data did not feature an increase in transportation, leisure and hospitality hiring because of the World Cup. Instead, there was a net downward revision in leisure and hospitality hiring in May, from 70,000 to 40,000, which was followed by a decline of 61,000 in that sector during June.
That decline appears to be highly unlikely given what one can plainly see around the economy in the cities where the games are being held.
The major catalyst for the monthly increase was 69,000 jobs in private education and health care, which has a three-month average of 60,000 in hiring.
Total private employment increased by 49,000 positions, goods-producing jobs by 10,000, construction by 11,000 and manufacturing by 3,000.
Trade and transport declined by 4,000 jobs, retail trade by 8,000 and information by 9,000. Financial sector hiring was flat on the month while professional business services added 36,000 in June.
Temp jobs increased by 9,000 while government jobs increased by 8,000.
The median duration of unemployment stood at 11 weeks in June, near where it has resided all year.
Average hourly earnings increased at a monthly rate of 0.3% in June and by 3.5% from one year ago.
The takeaway
There is simply too much noise in the monthly estimates of hiring in 2026 with the large rolling revisions, so one should focus on the three-month average increase of 111,000 jobs, which is more than sufficient to keep the labor market stable.
The slower-than-anticipated gain should create additional space for the Fed to remain on hold in July and take time to observe the evolution of inflation.
Inflation continues to outpace wage gains, which should also add to a less hawkish outlook by investors who are adjusting to less forward guidance out of the central bank and examine what its basic reaction function will be.
