US hiring slowed sharply in June, with nonfarm payrolls increasing by only 57,000, according to data released by the Bureau of Labor Statistics. This figure came after downward revisions to the prior two months' reports, curbing recent momentum in job growth. The unemployment rate also fell to 4.2%, largely due to a plunge in labor force participation.
Despite the overall slowdown in hiring, the US service sector saw improved growth momentum in June, with business activity and new orders increasing. Companies in this sector responded by increasing workforce numbers for the first time in three months, and the rate of job creation was solid, the sharpest since May 2023. This is in contrast to the overall nonfarm payrolls report which showed a significant slowdown.
The S&P Global US Services PMI Business Activity Index rose to 55.3 in June from 54.8 in May, marking the fastest expansion since April 2022. This growth was driven by an increase in customer numbers and new orders, which expanded at the fastest pace in a year. While new business from abroad continued to decline for the fifth consecutive month, specifically due to lower demand from Europe, domestic demand propelled the service sector's expansion.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the solid end to the second quarter for US service sector companies points to an annualized GDP growth rate of 2.0% for the second quarter, with a projected 2.5% rate in the coming months. He also highlighted that the easing of price pressures in the service sector adds to hopes for interest rate cuts before the end of the year.
