The US economy added more jobs than expected last month as unemployment surprisingly rose

• The US economy added 206,000 jobs in June, more than the forecast of 191,000.
• The unemployment rate rose from 4.0% in May to 4.1% in June.
• Data released earlier this week showed job openings rose slightly from 7.9 million in April to 8.1 million in May.

The US labor market came in just a touch hotter than expected, adding 206,000 jobs in June. Meanwhile, the unemployment rate unexpectedly rose from 4.0% in May to 4.1% in June.

According to the forecast noted on Investing.com, the US economy was expected to add 191,000 nonfarm payrolls in June.

According to a news release from the Bureau of Labor Statistics on Friday, job growth for May was revised from 272,000 to 218,000, and April's job growth was revised from 165,000 to 108,000. That's a pretty hefty revision, with 111,000 fewer jobs created than what was previously stated for April and May, the BLS news release on Friday said.

"We had a very tight, really robust labor market where there was just tons of churn and sort of fervent hiring, and that's cooled off," Nick Bunker, economic research director for North America at the Indeed Hiring Lab, told Business Insider. "That means we're back into a rebalanced, sustainable labor market. But if that cool down continues, we're going to be in not such a pleasant spot that we are in right now."

Government jobs saw robust growth in June, with a gain of 70,000. Healthcare added 48,600 jobs. Manufacturing and retail trade saw declines in their employment. Professional and business services did as well, with a loss of 17,000. Leisure and hospitality, which was adding tons of jobs during the pandemic recovery, only saw job growth of 7,000 in June.

"We're a service economy, and the service sector seems now to be struggling with the kind of rolling recession that hit interest rate-sensitive sectors first," Julia Pollak, chief economist at ZipRecruiter, told BI. "We first saw tech and housing, real estate industries like that cool down, but we're now seeing weakness spill over into services, and that's the main engine of job growth in the US economy."

Investing.com noted that the forecast for June's US unemployment rate was 4.0%. For the last few years, the unemployment rate has been at a historically low level, and while inflation is still stubborn, Nobel Prize-winning economist Joseph Stiglitz recently told Business Insider how remarkable it was that the inflation rate had cooled so quickly — after the rate skyrocketed to 9.1% in June 2022 — while the unemployment rate didn't have to surge as it came down.

"The unemployment rate remains at historic lows. We've done so well that people are looking at 4.1% and saying, 'Ooh, that's gone up,'" Acting Secretary of Labor Julie Su told BI. She added: "It was at or below 4% for the longest stretch since Neil Armstrong set foot on the moon. That was history-making. It's now ticked up slightly, but it is still very low by historic standards."

Stocks slightly ticked up after the report, as the mixed signals from the headline job growth number and increase in the unemployment rate could mean more willingness from the Fed to cut interest rates this year.

"I think this report will further cement the idea that the labor market has cooled off, has moderated, and that hopefully there's some couple more, few more good inflation reports in the pipeline, and that will give them more confidence where they can reduce interest rates," Bunker said.

With a decelerating labor market, including in the service sector, and "leading indicators point to further weakening ahead," Pollak said this should cause debate among the Fed about when to cut rates.

"The unemployment rate has ticked up a lot, and when it rises it often tends to continue rising," Pollak said, adding that there was a pretty large increase in the number of people considered long-term unemployed.

Other measures show continued strength. Labor force participation includes those working and those actively looking for work, and this rate rose from 62.5% in May to 62.6% in June. The share of prime-working-age Americans, or those aged 25-54, with a job remained steady at 80.8%.

Wage growth moderated. Average hourly earnings increased from $33.70 in June 2023 to $35.00 this past June, a 3.9% increase, a bit lower than the year-over-year rate in May of 4.1%. Average hourly earnings also rose from $34.90 this past May, or by 0.3%.

Other job market data out earlier this week showed that job openings and quits didn't change that much in May, with openings rising by 221,000 from 7.9 million in April to 8.1 million in May. The quits rate has been 2.2% for seven straight months, and there were 3.5 million quits in May.

"In May, the labor market continued to come into better balance — with openings holding steady and separations remaining low," Elizabeth Renter, senior economist at NerdWallet, said in a written commentary earlier this week, adding that the new data was "further encouragement that the current labor market supports continued inflation moderation and that a September rate cut could still be at play."