By Terry Lane

U.S. employers surprised economists by adding 147,000 jobs in June. Joe Raedle / Getty Images

The jobs market again proved resilient in June, as employers created more jobs than expected, while the unemployment rate unexpectedly turned down.

U.S. employers added 147,000 jobs in June, better than the 110,000 new jobs that was forecasted by economists surveyed by The Wall Street Journal and Dow Jones Newswires.  It’s also an improvement from May, when employers added 139,000 new positions.

The unemployment rate also improved in June, dropping to 4.1%. Economists expected it to rise to 4.3%. Hourly wages grew at a slower rate than expected, rising 0.2% in June for an annual increase of 3.7%. 

The positive report comes after the private-sector payroll report for June showed employers cut 33,000 jobs in June. 

Meanwhile, initial jobless claims for the week ending June 28 were also better than expected, coming in slightly under projections at 233,000 and the prior week’s levels.

Economists See Underlying Weakness in Employment Report 

While the June job numbers looked good on the surface, several economists said the details showed that the labor market was slowing, noting that private-sector hiring was weak.

“There are real weaknesses in the market—including concentrated job gains, slowing wage growth, and falling participation—that have persisted for months, and there are scant signs of those concerns fading anytime soon,” wrote Cory Stahle, Indeed Hiring Lab economist.

READ: Falling Rents Could Be Good News for Inflation

Employment gains were too concentrated in certain sectors, namely state and local government and health care, some economists said.

“Hiring was anemic in other parts of the economy. It’s hard to get a job right now in anything outside of health care, education and policing,” said Heather Long, chief economist at Navy Federal Credit Union. 

The drop in unemployment also pointed to a contraction in the labor force participation rate, as fewer workers sought jobs in June, economists noted.  

“Absent this decline, the unemployment rate would have risen to 4.7% versus 4.2% in April,” said Nationwide Chief Economist Kathy Bostjancic. “The labor participation rate might be falling due to potential workers becoming too discouraged to look for a job due to softening in job prospects or it stemmed from reductions in immigration that are reducing labor supply.”

Job Gains Likely to Keep Fed from Cutting Rates in July

While questions about the underlying strength of the labor market remained, fewer investors and economists had doubts about how the Federal Reserve will view the report.

The strong jobs data will almost certainly prompt the Federal Open Market Committee (FOMC) to keep the influential federal funds rate at its current level when it next meets in late July, economists said.

Investors also discounted the chances of a July interest rate cut. The CME FedWatch tool showed futures traders pricing in a 6.7% likelihood of a cut. Before the jobs data, there was nearly a 25% chance of a rate cut.

READ: Will the Fed Cut Interest Rates Soon? One Official Thinks So.

“While we think that the labor market is weaker than the headline suggests, it will not be enough to drive the FOMC to a rate cut in July,” wrote Dante DeAntonio, senior director at Moody’s Analytics.

Source: Investopedia