U.S. employers pulled back on hiring last month and added only 57,000 jobs, less than half the previous month’s total and a sign companies still have a cautious economic outlook.
The Labor Department said Thursday that the unemployment rate declined to a low 4.2 per cent from 4.3 per cent in May, though the decline mostly occurred because many people out of work gave up looking and were no longer counted as unemployed.
The figures suggest companies remain wary of the economy’s health, with inflation at a three-year high and consumer confidence near post-pandemic lows. The solid job gains that were initially reported in April and May were also revised lower.
The economy is growing modestly despite ongoing challenges. It expanded at a 2.1 per cent annual pace in the first three months of the year, though some forecasts expect it will slow in the April-June quarter.
Companies have adjusted to a series of challenges — higher tariffs, the Iran war, widespread AI investment — and are increasingly confident that the economy will keep growing. In the three months from March through May, employers added an average of 188,000 jobs a month, a significant pickup from an average loss of 4,000 in the preceding three months from December through February.
“Even though it’s still kind of a challenging market … the understanding of where things are headed, it has calmed down a bit,” said Nicole Bachaud, labor economist at ZipRecruiter.
“And so businesses are able to now execute on hiring plans.”
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Still, inflation is at a three-year high of 4.2 per cent, lifted by spiking gas prices, and that has eroded Americans’ incomes. Inflation-adjusted after-tax incomes were flat in May from a year earlier, which could discourage some consumers from spending.
But a healthy labor market that can continue to generate jobs should enable many consumers, particularly upper-income ones, to remain resilient and spend more, boosting the economy.
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The inflation-fighters at the Federal Reserve, however, are under increasing pressure to raise rates to slow the economy and combat inflationary pressures. Now that gas prices are headed lower with the peace agreement between the United States and Iran, inflation should start to cool and many Fed officials will want to see how much closer it can get to the Fed’s two per cent target before raising rates.
Still, other officials say that solid job growth is a sign that the Fed’s key rate — currently about 3.6 per cent — may not be restraining the economy or cooling inflation pressures.
Historically, average job gains of 188,000 a month wouldn’t be seen as that strong. Yet as more Americans retire and new immigration has dropped sharply, the U.S. workforce is barely growing.
In that case, hiring at about 100,000 new jobs a month may be enough to keep the unemployment rate unchanged — or even lower it.
There are some wild cards that could affect the June data. In May, employers added 172,000 jobs, with 70,000 of those new positions at restaurants, bars, and hotels. And local governments added 55,000 jobs. Both gains, particularly in local government, were higher than normal and economists think it’s unlikely they’ll be repeated.
Some analysts speculate the May job gains at restaurants and hotels reflected additional hiring in preparation for the World Cup, which began June 11th. If so, the large gain would be unlikely to happen again. Yet many economists say that while the World Cup may have sparked more hiring in the cities hosting the event, it hasn’t been large enough to affect the national data.
The ongoing adoption of artificial intelligence has led to widespread worries that it will replace many workers and reduce employment. Yet so far there haven’t been widespread layoffs stemming from AI adoption, and economists argue that it could make many workers more efficient at their jobs instead.
Bachaud said AI adoption could have encouraged a trend she’s noticed on their website: Companies are increasingly posting jobs seeking more senior, experienced workers, while job hunters are instead gravitating toward entry-level jobs.
With far fewer people quitting their jobs than just after the pandemic, Bachaud said, companies are having more trouble recruiting experienced workers from other businesses. At the same time, that’s left less-experienced workers struggling to break into the job market.
That gap “just shows the mismatch between what employers are looking for and what current job seekers have to offer,” she said. It has likely contributed to the frustration many job seekers feel even as the unemployment rate remains low.
© 2026 The Canadian Press
