June Jobs Report Surprises With 147,000 New Jobs, 33% Above Expectations

Wall Street analysts were caught off guard by the June U.S. jobs report, which showed a significant increase in nonfarm payroll jobs, far exceeding expectations. The consensus estimate had been around 110,000 new jobs, but the actual figure came in at 147,000. This discrepancy led to a flurry of explanations from analysts who had initially predicted a weaker report.

One of the key factors that analysts cited for their misjudgment was the "seasonal noise" around government hiring. The report indicated a substantial increase in state and local government payrolls, particularly in the education sector, which masked the underlying weakness in private company hiring. According to Pantheon Macroeconomics, the robust headline figure was entirely due to an 80,000 increase in state and local government payrolls, with 64,000 of those jobs in education. This seasonal bump is expected to unwind in the following month, revealing a more accurate picture of the labor market.

Analysts from various firms, including UBS and JPMorgan, echoed similar sentiments. UBS analyst Paul Donovan noted that while the headline figure was strong enough to dispel ideas of an immediate interest rate cut, the details suggested a more negative outlook for the U.S. economy. JPMorgan's Bruce Kasman and his team also attributed the surge in state and local hiring to seasonal noise, indicating that the private sector's job growth was much weaker than the headline figure suggested.

Daiwa Capital Markets analysts Lawrence Werther and Brendan Stuart highlighted that private-sector payroll growth totaled only 74,000, which was significantly lower than the average of the prior six months. They also pointed out that firms were not yet slashing payrolls but were responding to policy uncertainty by slowing hiring. This cautious approach by businesses reflects the ongoing impact of tariffs and trade policies, which have made everything more expensive and suppressed hiring.

Despite the unexpected strength in the jobs report, the overall unemployment rate remained roughly the same. Analysts had been anticipating that President Trump's tariff regime would eventually damage the U.S. economy, but that impact has not yet materialized. The data suggest that while firms are not yet reducing their payrolls, they are slowing down hiring in response to policy uncertainty.

In summary, the June jobs report surprised analysts due to seasonal factors that inflated government hiring numbers. The underlying weakness in private sector hiring was masked by these seasonal adjustments, leading to a misleadingly strong headline figure. Analysts now expect the labor market to show more accurate data in the coming months as these seasonal effects unwind. The overall economic outlook remains cautious, with firms responding to policy uncertainty by slowing hiring rather than reducing payrolls.