June Jobs Report: Treasury Yields Fell As Labor Market Begins To Show Cracks

What happened: The US labor market added 209,000 total nonfarm payroll jobs in June. The unemployment rate changed little at 3.6%. While the pace of job gains cooled, annual growth in average hourly earnings edged up to 4.4% in June, up from 4.3% in May.

What it means: The headline numbers show the U.S. labor market is still on solid ground. However, a look at which industries are adding jobs reveals cooling beneath the surface. Only two sectors – health care and social assistance and government – accounted for nearly 60% of the employment gains.

What Zillow Senior Economist Orphe Divounguy thinks: On one hand, a strong labor market and high wage growth is good for home buying activity. On the other hand, if wage growth and core inflation remain stubbornly high, mortgage rates could remain elevated, along with the potential for more Federal Reserve rate hikes.

While today's report could bolster the Fed’s case for another rate hike, a broader labor market slowdown is still underway. 

The largest job gains came in health care and social assistance, state and local governments, and construction.

The increase in construction employment is good news since it reflects a change in builder sentiment and continued new building – especially in the residential space. This sustained home building should alleviate price pressures –which is good news for potential home buyers and the housing market as a whole.

The yield on the 10-year Treasury, which mortgage rates often follow, fell on the news. Next week’s Consumer Price Index report will likely cause a bigger stir for Treasury yields and closely-linked mortgage rates.

Numbers to know: 

• In June, nonfarm employment increased by 209,000 jobs. June’s lower-than-expected monthly increase comes after downward revisions totalling 110,000 jobs to prior months.
• The unemployment rate changed little, falling from 3.7% in May to 3.6% in June.
• Hourly earnings are up 4.4% year over year, compared to 4.3% in May.