Employment in the United States slowed more than expected in June

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US job growth slowed more than expected in June and was revised downward for the past two months, a sign that the Federal Reserve’s aggressive rate hikes are beginning to cool the labor market.

The US economy added 209,000 new non-farm payrolls last month, below expectations of 225,000. Growth during April and May was also revised down by 110,000.

The unemployment rate remained near its lowest level in several decades, however, it fell again to 3.6 percent after a slight rise in May. Wage growth was also stronger than expected at 4.4 percent year-on-year.

Employment and wage growth are major drivers of inflation, particularly in the service sector. Friday’s numbers will be scrutinized by investors, economists and central bank officials, who are watching for evidence that higher interest rates are slowing the economy and lowering inflation.

Most economists expect hourly wage growth to decline to an annual rate of about 3.5 percent to be consistent with the federal inflation target of 2 percent.

“There are hints of things slowing down,” said Drew Matos, chief market strategist at MetLife Investment Management. [but] A drop in the unemployment rate will probably put the Fed on a path to raising interest rates at the end of the month barring some sort of surprise now and then.”

Although headline inflation numbers are beginning to trend lower, the labor market is proving resilient, with economists underplaying the strength of payroll growth for 14 straight months ahead of Friday’s data.

Despite a slowdown in the latest data, core job growth for June remained above the pre-pandemic average. Employment was particularly strong in the health care, social work, and construction industries, but softened in the retail sector.

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The Fed held interest rates steady at its June policy meeting to give officials more time to assess the impact of previous rate hikes and the potential impacts of recent turmoil in the banking sector.

However, policymakers made it clear that they are not yet done with the monetary tightening campaign, with most officials expecting two more quarter-point rate hikes by the end of the year.

Friday’s data wasn’t enough to convince investors that the Fed will change course, with futures markets still pricing in more than a 90 percent chance of a rate hike at its next meeting in late July.

US stocks opened lower on Friday morning, and investors bought US Treasury bonds following the jobs numbers. The two-year Treasury yield, which moves with interest rate expectations, fell, reversing Thursday’s rally to a 16-year high after strong private payrolls data.

The S&P 500 fell 0.1 percent in early trading on Wall Street, while the Nasdaq Composite rose marginally.

Downward revisions to past data “suggest that the economy is doing well, but it’s not thriving the way it was six months ago,” said Stan Shipley, chief economist at Evercore.

He added, “It is likely that the Fed will continue to raise it in July, because the unemployment rate is coming down… The question is about the Fed meetings after July.

Additional reporting by Kate Duguid in New York and Colby Smith in Washington