US Economics: A stable labor market, but not a strong one

Research evidence excerpt

US Economics: A stable labor market, but not a strong one

US Economics

02 July 2026 Citi Research

Data – Nonfarm payroll employment rose by 57k in June, softer than consensus

expectations at 113k but closer to our 25k forecast. Private employment rose by

49k jobs, closer to our 30k estimate but below consensus at 107k. Payrolls over the

previous two months were revised lower by 74k.

Leisure/hospitality fell by 61k jobs and was revised lower to a 40k increase in May.

Strength continues to be driven by private education and health services, which

added 69k jobs in June. Manufacturing payrolls rose by 3k while construction rose

by 11k.

Average hourly earnings rose 0.35%MoM and 3.5%YoY, a bit stronger than we had

expected but in line with consensus expectations.

The unemployment rate fell to 4.19% from 4.30% in May, but alongside a large

decline in the labor force participation rate from 61.83% to 61.55%. If participation

had remained unchanged (and assuming actual June household employment), the

unemployment rate would have increased to 4.63%.

Citi’s view – While likely not soft enough to have Fed officials significantly

questioning the stability of the labor market just yet, an overall softer June jobs

report leaves us expecting that a persistently low-hiring environment will result in

more obviously softer labor market data later in the year. We continue to think rate

cuts are much more likely than rate hikes, and pencil in cuts again starting in

October.

A more modest 57k increase in total nonfarm payrolls in June with downward

revisions to previous months takes 3-month average job growth to a more modest

111k from above 180k (pre-revision) in May. This would still be a solid pace but we

think June payrolls should highlight a few important dynamics. 1) Average job