June payrolls slow; unemployment falls for wrong reason

July 6, 2026

Non-farm payrolls rose by 57,000 jobs in June, its weakest reading since February. Data for the last two months was revised down by more than 30,000. Public sector payrolls expanded a bit, but the largest gain was in May. The month was an outlier for local government hiring.

Gains remained concentrated in healthcare and social assistance, although the pace of hiring has slowed considerably. The losses due to the pandemic have been recouped, while cuts in Medicaid and an end to COVID-era subsidies for the Affordable Care Act reduced the ranks of the insured.

The bulk of the gains in healthcare and social assistance were in social assistance. That spans childcare to eldercare and mental health professionals. Aging demographics remain a tailwind for healthcare services - the challenge is paying for them.

More worrisome is a drop in job openings in the job opening and labor turnover survey (JOLTS), which just came out for May. The data revealed a drop in job openings in healthcare and social assistance. Cuts to insurance and the margin squeeze, notably on non-profit rural and inner-city hospitals is intensifying. This is while aging demographics are buoying the demand for healthcare services more broadly.

Wage gains in the sector have slowed considerably, despite the hiring spree. A primary reason is a shift to more low-wage jobs in the care economy and an end to the COVID-era nursingshortages. A surge in quits, older demographics and disruptions to training due to the pandemic temporarily limited the supply of nurses. That boosted wages for traveling nurses well into the six figures for a short period of time as we emerged from the pandemic. Those wages have since dropped by 50% or more in most markets.

Professional and business services continued to rebound after shedding jobs in 2025. Gains were broad based, including administrative support and temporary help services. Wages are accelerating again, reflecting hiring gains in legal, accounting and consulting services.

The rise in professional business services is welcome news, as it could help to offset any slowdown we see in healthcare and social assistance. The JOLTS data revealed an increase in job openings in professional business services for the second consecutive month.

The rest of the service sector was pulled down by a loss in seasonal hires, notably in leisure and hospitality, which shed 61,000 jobs. Much of the downward revisions to payrolls for May were due to a smaller than initially reported rise in the sector. So much for the bump in travel and tourism associated with the FIFA World Cup.

Retail was essentially unchanged. Job gains at clothing retailers and traditional department stores offset losses at big box discounters. The latter have been hit by the margin compression due to higher energy prices and a squeeze on low- and middle-income households. A rise in foot traffic by high-income households was not enough to offset those losses. We should get some relief with a receding price at the gas pump over the summer.

 Traditional retailers did better, which is unusual and a sign of some stabilization in the sector. Clothing and sporting goods stores added jobs, some of that reflecting the shift due to GLP-1 drugs. Resale shops are having a minute as well.  

Information technology continued to shed jobs, even as wages remained buoyant. That reflects a scaling back of entry-level workers in favor of more experienced higher wage workers. The competition for AI talent remains intense. 

The goods sector added marginally to job gains, with increases in construction for data centers offsetting a drop in mining activity. A gain in durable goods manufacturing helped offset a loss in nondurable goods. A rebound in the defense sector is adding to gains in manufacturing, while the auto sector pared employment during the month. 

The USMCA trade agreement has been put on annual reviews, which is unusual for any trade agreement. Negotiations for this year officially started on July 1, although some discussions kicked off ahead of that date. Annual reviews remove certainty for planning purposes and have already taken a toll on investment in Canada and Mexico.

The administration has made no secret of their desire to bring more manufacturing activity home. The challenge is the cost and the $2 trillion in trade that the agreement covers; it currently favors the vehicle industry. Onshoring is costly and will require highly automated plants if it occurs.  

Wages accelerated

Average hourly earnings rose 0.3% in June and were up 3.5% from a year ago, up slightly from the pace of May. We have been settling into a 3.5% pace since late last year. Hours worked edged down a tick, which hurt weekly earnings. 

The biggest loss in hours worked has been in in-home care. Demand for workers is high but supply is limited which is causing some rationing by providers. Cuts to Medicaid are another hurdle going forward. Immigrants play an outsized role in filling those jobs.

Wages have cooled from the hot pace we saw earlier in the recovery but are still running well above the pace consistent with price stability. Supervisory workers continue to see their wages rise more rapidly than nonsupervisory workers. That is adding to inequality along with inflation, which hits those who can afford it least the hardest.

Many on the Federal Reserve are worried that wages tend to lag rather than lead inflation. We could see more of an acceleration in wages, despite the undercurrents for entry-level workers. A surge in retirements is another issue supporting lower rates of unemployment and tighter labor market conditions. The problem is the mismatch between a slow pace of hiring and a smaller labor pool to hire from. 

Unemployment falls for wrong reason

Separately, the household survey revealed that the unemployment rate edged lower to 4.2%. A sharp drop in participation in the labor market was the primary reason. The largest decline was among those between the 25-29 years old. The low hire, low fire economy has been hard on entry level workers. New college grads have seen their unemployment rate rise, underscoring that a rising tide does not lift all boats.

The U-6 or more holistic measure of unemployment edged down to 7.9% in June, its lowest level since February. This includes those who have not looked for a job over the last four weeks and those who were forced to accept part- instead of full-time work. The rate is still well above the lows hit earlier in the recovery and those we saw pre-pandemic. The combination of this and the woes that young people are enduring are the undercurrent under the hood of the labor market data.

Some of the most telling unemployment rates were the sharp move up in a few sectors over the last year - information, mining and self-employed all saw large increases in unemployment since June 2025. The government sector saw a decline in unemployment from a year ago, which spiked during layoffs last year. 

The rise in unemployment among the self-employed is occurring at a time that the incidence of “solo-prenuers” - those setting up a business without the intent to hire - has surged. That makes one wonder whether “solo-prenuers” are as well off as the business formation data suggests.

The duration of unemployment edged down slightly but remains elevated and well above earlier in the cycle and the pace we saw pre-pandemic. Those who have a job are still clinging to it, while those without are left wanting, despite historically low unemployment.