U.S. June NFP Jobs Report Unexpectedly Strong — Unemployment Drops to 4.1%, Crushing July Rate Cut Odds

TradingKey - On Thursday, July 3, the U.S. Bureau of Labor Statistics released data showing that the June nonfarm payrolls rose by 147,000, far exceeding the expected 110,000, and up from the previous reading of 139,000.

More surprisingly, the unemployment rate fell to 4.1%, down from 4.2%, and well below the forecast of 4.3% — with Citi previously projecting a rise to 4.4%. The annual growth in average hourly earnings came in at 3.7%, slightly below the prior and expected 3.9%.

U.S. Nonfarm Payrolls in June, Source: TradingKey

Revisions Show Stronger Employment Trend

The report also showed upward revisions for April and May, adding a total of 16,000 jobs to earlier figures — reinforcing the view that the labor market remains resilient.

Meanwhile, initial jobless claims for last week came in at 233,000, better than the expected 240,000, and down from the prior 236,000, suggesting the labor market is not as weak as some feared.

This contrasted sharply with Wednesday’s ADP employment report, which showed an unexpected loss of 33,000 private sector jobs — the first negative print since March 2023, and far below the 98,000 increase economists had anticipated.

The Challenger, Gray & Christmas report also noted that June hiring plans were among the weakest since 2004, ranking as the second-weakest on record.

However, compared to these softer indicators, the nonfarm payrolls — considered the “hard data” — carry more weight in shaping the Fed’s policy outlook.

Market Reaction: July Cut Off the Table

Analysts at Brandywine Global Investment Management said that this stronger-than-expected jobs data reinforces the Fed’s data-dependent stance, supporting the case for keeping rates higher for longer.

A strategist at AmeriVet Securities pointed out that the key factor was the drop in unemployment — which has effectively closed the door on a July rate cut.

Following the release, markets quickly priced out any chance of a Fed rate cut in July. The probability of a September cut also dropped from 98% to around 80%.

The stronger jobs report lifted the U.S. Dollar Index (DXY) off recent lows, while non-U.S. currencies weakened — EUR/USD fell 60 pips, GBP/USD declined 50 pips, and USD/JPY rose 60 pips. Gold prices fell below $3,320/oz. , down over 1% on the day.

But Inflation Still Matters

Some analysts warned that although this jobs report rules out a July cut, the June CPI report will remain critical — if inflation cools further, it could still support an earlier rate cut later this year.

The report also showed signs of economic slowing:

• Average hourly earnings growth slowed more than expected
• Weekly average hours worked fell from 34.3 to 34.2

These figures suggest that while the labor market remains strong, certain underlying indicators point to continued moderation in economic activity.