Softer US job report and transitory hotter inflation: Will the Fed hike?
June NFP headline job additions were primarily dragged down by leisure & hospitality due to front-loading in April & May ahead of the FIFA World Cup.
The increase in multiple jobholders (including agro) is almost equivalent to the decrease in the number of employed persons (Jan '25-June '26) due to labor force contraction and skill mismatches.
If the labor force participation rate now stays around 62.6% (2024) levels instead of 61.9% (2026), the headline unemployment rate would be ~5.0% instead of 4.3% on average.
Fresh US job creations are subdued due to Trump policy uncertainty despite the so-called perceived narrative of ‘Make in USA’ and AI/construction boosts.
The Fed will be in wait-and-watch mode till Dec '26 amid transitory hotter inflation and a softer employment situation in the economy, which may affect US consumer spending going forward.
On July 2, 2026, the focus of the market was on the US NFP/BLS job report for June '26 and the overall employment situation of the world’s biggest economy amid Trump’s chaotic policies on immigrants and trade & tariff wars with Iran. Overall, at a glance, under Trump’s unpredictable policies, the US economy may now be facing a stagflation-like scenario.
The BLS Establishment Survey
The latest BLS establishment survey flash data (seasonally adjusted) shows that the U.S. economy (private + public/government sector) added +57K non-farm payroll (NFP) jobs in June '26 after adding +129K sequentially (m/m) and -20K yearly (y/y). The market was expecting a +110K increase in NFP jobs amid an expected FIFA World Cup boost. The US NFP employment covers public (government) and private sector employees/jobs, excluding the farming/agriculture industry. The 3MRA was +111K in June '26 vs. +115K yearly. For Q2CY26, the 3MRA was +111K vs. +73K in Q1CY26.
After the latest revisions, the 3M rolling average (3MRA-YTM) of US NFP job additions was around +84K against +85K yearly (y/y). The 2025 average was around +10K vs. +92K in 2026 (YTM) against +122K in 2024 and +148K in 2019 (pre-COVID). The US job market may now be under meaningful stress due to Trump’s uncertain, bellicose policies on tariffs, war with Iran, and immigration & deportation despite the perceived manufacturing and AI thrust. Overall, the nominal number of US NFP employees was around 158,984K in May '26 vs. 158,268K in Jan '25 under Trump 2.0. The average R/R in 2026 is now around +92K, far lower than the Fed standard of +175K on average. On a TTM basis, the US NFP added around +506K jobs in June '26; the overall TTM (YTM) average was +30K/M.
The BLS flash data also show that the U.S. private sector (only private establishment/business employees) added +49K payroll jobs in June '26, compared with +97K sequentially and -45K yearly. The market was expecting a +110K gain against ADP's private payroll job addition of +98K in June. The 3MRA was +99K in June '26 vs. +105K yearly. For Q2CY26, the 3MRA was +99K vs. +78K in Q1CY26.
After the latest revisions, the 3M rolling (3MRA-YTM) of US private NFP job additions was around +103K against +88K (y/y). The 2026 YTM average of NFP private payroll job additions was around +88K vs. +28K in 2025 and +148K in 2019. The pre-COVID longer-term (2014-19) average private payroll job addition was around +174K, indicating significant stress in the private sector amid Trump policy uncertainty. On a TTM basis, the US NFP added around +721K jobs in June '26; the overall TTM (YTM) average was +50K. Till June '26, the US NFP/BLS private job addition average (YTM) was around +88K vs. ADP private payroll of +77K. In 2025, the same was +33K (ADP NFP) vs. +28K (BLS NFP).
Overall, the nominal number of US NFP private employees was around 135613K vs. 132722 for ADP in June '26. The YTM difference (NFP-ADP) was around 2915K vs. 2882K in 2026.
The latest BLS Establishment survey flash data also shows the government payroll, i.e., employment in federal, state, and local governments, expanded around 8K jobs in June '26 against 32K sequentially and 25K yearly. The market was expecting no government job additions in June '26. The sudden boost in government payroll jobs for the last two months was primarily led by local governments. Local government drove much of the government sector gain in non-education roles, like administration and public services. Federal hiring remained flat-to-negative due to efficiency cuts, while state government was slightly down. The local surge reflects routine catch-up hiring, budget cycles, and service demands. Looking ahead, the 2026 midterms are still months away (November), and election-related staffing may ramp up closer to voting (August-October).
After the latest revisions, the 3M rolling average (3MRA-YTM) of US government NFP job additions was around -3K in June '26 vs. +5K yearly. After the latest revision, the 2026 (YTM) average for the US government payroll was around +5K against -15K in 2025, +37K in 2024, and 18K in 2019 (pre-COVID). The longer-term pre-COVID (2014-19) average government payroll addition was around +36K. Overall, under Trump 2.0, the US government payroll contracted drastically due to Trump’s policy to privatize the US economy almost fully and to improve overall economic productivity. For Q2CY26, the 3MRA was +13K vs. -5K in Q1CY26.
In June 2026, the US NFP job addition was dragged down by leisure & hospitality, information/tech (AI disruptions), and retail trade. For Q2CY2026, the U.S. labor market was slightly better than Q1CY26—sectors like Health Care and Professional Services provided consistent boosts—but the overall labor market was dragged down by a volatile Leisure & Hospitality sector (cyclical issues) and structural declines in Information/tech.
For the last 3 months, the US job market was boosted by the following:
Private education & healthcare services
Education: Driven by seasonal demand and the ongoing expansion of specialized vocational training programs (skill development) to meet the needs of a tech-heavy economy.
Health Care & Social Assistance: Consistently added the most jobs, driven by the aging U.S. population & nuclear families (rather than joint) and post-strike recoveries in large health networks like Kaiser Permanente.
Professional & Business Services: Trended upward throughout the quarter as companies prioritized human skills like strategic oversight to manage increasing AI integration.
Government (Local): Played a stabilizing role, with steady hiring in local administration and public safety helping to offset private-sector volatility.
Transportation & warehousing: Despite rapid warehouse automation, persistent shortages of drivers (immigration & language issues), and front-loading of warehousing due to Trump tariffs earlier, it recovered due to the FIFA World Cup and the temporary end of the Trump tariff hangover following the SC order. Also, capacity expansion (+28K) for airlines helped.
Construction: AI data center boom and housing, manufacturing & infra boost despite elevated borrowing costs.
Retail trade: Seasonal World Cup tourists boost it—despite e-commerce dominance and a shift in consumer spending towards services rather than products after COVID.
The 3M NFP job addition was dragged by the following:
Leisure & hospitality: The biggest drag in June (-61K jobs after a front-loaded hiring surge in May (+44K) for the FIFA World Cup (June 11 kickoff); the demand for new staff already peaked, and in July-August, we may see some additional declines. Also, the overall World Cup boost was lower than expected due to stiffer bookings amid various geopolitical tensions, visa, and national security issues. Regular domestic seasonal (summer) travelers also avoided host cities for potential crowding and a surge in hotel prices (including a higher wages agreement for hotel staff, $40/H, signed on June 9). Many hotels are now relying on automation rather than additional hiring.
Information/techs: Suffered from structural layoffs as media and tech firms automated middle management roles and content production (AI disruptions).
Financial Activities: Dragged by commercial banking and insurance, where higher interest rates and AI-driven automation reduced the need for administrative staff.
Manufacturing: Remained largely flat or slightly negative despite increasing supply chain shifts in the US amid Trump’s bellicose tariff negotiation policies and also increased reliance on robotics-enhanced production lines affecting labor demand.
Overall, the softening of the US employment situation is structural as well as cyclical amid the FIFA World Cup front-loading, Trump policy uncertainty, and AI disruptions.
The 2M revision was -74K vs. +92K sequentially.
As per the latest revision in the establishment survey, the change in total nonfarm payroll (NFP) employment for April was revised down by -31K, and the change for May was also revised down by -43K. With these revisions, NFP employment in the last two months combined was revised down by -74K from what was previously reported.
The BLS Household Survey
The latest BLS household (HH) survey data shows the nominal number of the US civilian non-institutional population (>16 years of age) increased by +112K to 275166K in June '26 (CAGR +0.4%), while the labor force decreased by -720K to 169358K (CAGR -1.6%).
The labor force participation rate was 61.5% in June '26 vs. 61.8% sequentially and 62.3% yearly,, and the lowest since Oct '21. The pre-COVID average participation rate was around 63.1%, while 2006 levels were around 66.4% (pre-GFC days).
As per the BLS Household (HH) survey, the U.S. economy has contracted by 507K employed persons in June '26, against the addition of 149K sequentially (m/m) and 83K yearly (y/y). The 2026─YTM average was -288K (CAGR -1.6%) vs. +201K (CAGR +0.5%) in 2025 and +40K in 2024 (CAGR +0.8%).
The U.S. had 163,831K employed persons in Jan '25 and 162,264K in June '26; i.e., lost around -1,567K employed persons under Trump 2.0 so far against a -1,338K contraction in the labor force. The pre-COVID (2018-19) average was around +206K/M. The post-COVID (2022-24) average was around +154K, which now plummets to -288K on average (2026-YTM) under Trump 2.0. The US BLS HH survey includes nonfarm payroll (NFP) employees (private + public/govt) and self-employed persons (including professionals, contractors, and agri-workers).
As per household survey data, the nominal number of unemployed persons decreased by 213K to 7094K in June '26 against -66K sequentially (m/m) and -195K yearly (y/y). The YTM (June '26) average was -68K vs. +49K in 2025 and +49K in 2024.
In June '26, the U.S. unemployment rate edged down to 4.2% from 4.3% sequentially (m/m) and 4.1% yearly (y/y) and below the market expectations of 4.3%. The YTM average was 4.3% vs. 4.0% in 2025 and 3.6% in 2024, while the pre-COVID level was also 3.6%. The U-6 unemployment rate, including discouraged & underemployed workers, slipped to 7.9% from 8.1% sequentially, 7.7% yearly, and pre-COVID levels of 6.8%.
In June '26, the US employment rate was 95.8% vs. 95.7% sequentially and 95.9% year-over-year. The YTM was 95.7% in 2026 vs. 96.0% in 2025, 96.4% in 2024, and 96.3% in 2019 (pre-COVID). In June '26, the US employment-to-population rate was 59.0% vs. 59.2% sequentially and 59.7% yearly, the lowest in over 4 years; the pre-COVID rate was 60.8%. The YTM TTM average was 59.2% vs. the 2025 average of 59.8%.
As per BLS data, the US multiple job holders (excluding agriculture) increased by +126K in June '26. The June '26 YTM average was -49K vs. +30K in 2025. Multiple job holders are now around 5.2% of employed persons vs. 5.4% in 2025.
The US multiple job holders (derived through the difference between private payrolls of BLS establishments and household and agricultural workers/self-employed persons) increased by +537K to 10044K vs. 9507K sequentially and 8553K yearly. The June '26 YTM average was +336K vs. -194K in 2025 and 29K pre-COVID. The US multiple job holders, including the agriculture sector, are now around 5.7% of employed persons (YTM-June '26) vs. 5.3% in 2025 and 6.3-5.3% in 2024-23.
The June '26 US real wage growth (nominal growth - CPI) was around -0.3% vs. +0.7% in Jan '25. Overall, the average US real wage growth was around +0.4% in 2026 (YTM-June) vs. +1.0% in 2025 and +0.7% in 2024. The average US monthly wage (NFP employees) was around $4889 in Jan '25 and was $5164 in June '26.
In June '26, BLS hourly data translates to an average monthly US wage of $5164.2 vs. $5149.2 sequentially (+0.3%) and $4974.0 yearly (+3.8%). The YTM (June '26) average US wage growth was around +3.8% in 2026 vs. +3.7% in 2025. The average US CPI was +3.4% in 2026 (YTM-June '26) vs. +2.7% in 2025.
Conclusions
Overall, under Trump 2.0, the nominal number of US unemployed persons increased by around +229K from 6865K in Jan '25 to 7094K in June ’26, but the unemployment level remains almost the same at 4.0% (Jan '25) vs 4.2% (June '26) as labor force participation also decreased drastically from 62.6% to 61.5%. If the labor force participation rate remains around the 62.6% average for 2023-24, against the 62.0% average for 2026 (YTM), the average US unemployment rate would be around 5.0% rather than 4.3%. The US labor force sharply reduced by -1338K under Trump 2.0 (Jan '25 to June '26) due to aggressive anti-immigration and nationalistic policies.
Also, from Jan '25 to June '26, the number of US multiple job holders (including agriculture) increased by +1536K against a net decrease of employed persons of -1567K in the same period. The US labor force also contracted by around -1336K in the same period. All these indicate an increasing number of multiple job holders (gig workers) to make up for labor shortages and skill mismatches amid an increasingly tech/AI-savvy economy/labor market.
The US labor market/employment situation is stable due to the contraction of the labor force but not solid amid various structural and also some cyclical issues. Also, Trump’s chaotic policies, from trade & tariff wars to the Iran war and hawkish immigration policies, are significantly contributing to inflation. The focus of the market is now on the Iran war/peace and the SOH/oil & inflation trajectory.
Overall, at a glance, under Trump’s unpredictable policies, the US economy may now be facing a stagflation-like scenario:
Higher cost of living/inflation (adverse effects of tariffs, supply chain disruptions, and higher cost of energy/fertilizers/commodities)
A lower number of employed persons and a lower labor force (both supply and demand issues/a slowdown in fresh job creation due to Trump’s uncertain policies and increasing reliance on AI/automation)
Lower economic growth (2.1% in CY25 vs. 2.8% in CY24); ~2.2% expected in CY26.
The Fed has to act in a balanced way to bring down core inflation (average 3.0%) by around 100 bps for its inflation target. And at the same time, it has to ensure the headline unemployment rate is below the 4.5% red line and further bring it down to around 3.6% pre-COVID levels (maximum inclusive employment).
Thus, overall, the Fed has to ensure a neutral monetary policy—neither tight nor loose—to ensure a balancing act to bring down inflation without causing a sharp decline in employment. To ensure a soft landing, the Fed may continue to keep real interest rates around +1.0% above average (12M/6M) core inflation (CPI+PCE). Thus, the Fed may be on hold at least till Dec '26 amid transitory hotter US inflation (due to the SOH blockade and higher oil) and a stable, but not solid, labor market.
New Fed Chair Warsh often looks & sounds blunt. He is trying to bring QT from 2027 to reduce the Fed's B/S size and inflation structurally, while at the same time, it may reduce/exempt the regulatory limit for banks & institutions in the form of SLRs (supplemental leverage ratio)—so that US banks & financial institutions may buy a higher amount of US bonds to keep bond yields lower. Warsh may also justify higher economic growth along with higher productivity, resulting in lower/stable inflation and higher growth.
Various Fed officials are now also debating a flexible inflation targeting regime (like an inflation target of +2.0% with a band of +/- 1.0% on both sides (1.0%-2.0%-3.0%) for policy flexibility. Similarly, the Fed may employ unemployment rate targeting of 4.0% +/- 0.5% on both sides (3.5%-4.0%-4.5%) for the ease of overall policy implementation in a systematic way rather than rushing.
Ahead of the Nov. '26 US midterm election, Trump is now trying to bring down prices of daily/essential goods for ordinary Americans (vote bank) by pressuring big grocery/FMCG retail giants like Walmart. This shows Trump may not allow the Fed (Chair Warsh) to make any rate hikes on the excuse of higher inflation. Officially, as a central bank, the Fed may be bound to hike rates in an effort to suppress demand while the supply capacity of the economy is constrained so that both match each other and bring down prices/inflation (whatever may be the underlying causes of lower/disrupted supply). But a central bank can always be in wait-and-watch mode if it feels that the underlying causes are cyclical/transitory rather than structural/permanent.
Bottom line:
Here, transitory hotter US inflation and a stable but not solid labor market, coupled with Trump’s policy uncertainty, mean the Fed may be in wait & watch (hold) mode for the rest of 2026 rather than in any hike or cut.
Market impact
A less hawkish Fed would be negative for the USD and US bond yields and positive for equities and gold. But the growing narrative of an AI bubble and overall stretched valuation (TTM PE well over 30 bubble zone) may also drag Wall Street irrespective of any Fed narrative. And the steady contraction in employed persons, along with a higher cost of living, may also impact US consumer spending, the backbone of the US economy. Also, a fragile Iran-war ceasefire may boost oil and drag equities. Ahead of the Oct '26 Israeli general election, Israeli PM Netanyahu (BB) may escalate Iranian tensions for domestic political compulsion. Similarly, depending upon the actual trajectory of Iran's nuclear and SOH deal negotiations, if Trump feels the Iran deal may not help him politically (Nov '26 midterm election), Trump may also launch a surgical or even an all-out strike on Iran.
Technical outlook: DJ-30, NQ-100, SPX-500, Gold, Oil, and USDJPY
Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 53450) now has to sustain over 54000 for a further rally to 54500*/55000-55500/56000 in the coming days; otherwise, sustaining below 53800-53500 may cause it to fall to 53200/52900-52500/51900 and 51300/51000-50500/50200 and 50000/49750*-49500/49100-47900-45250/45000 in the coming days.
Similarly, NQ-100 Future (30700) now has to sustain over 31000 for a further rally to 31200/31300-31500*/32000 and even 32400/32500 in the coming days; otherwise, sustaining below 30800/30700-30600/30300, it may fall to 30000/29500-29100/28300*-28100/27800; it may fall to 27400-27000 and 26600/26300-26000/25600 in the coming days.
Looking at the chart, technically SPX-500 (CMP: 7557) now has to sustain over 7600/7650-7680/7700 for a further rally to 8000-8300 in the coming days; otherwise, sustaining below 7595-7575, SPX-500 7550/7500-7300/7200 and 7100-6900, it may fall to 6835/6700 and further 6600-6500/6450 and 6350/6300-6250/6180 and 5860-4800 in the coming days.
Looking ahead, whatever may be the narrative, technically gold ($4157) now has to sustain over 4130 for a recovery to 4180/4230-4275*/4325 and further rally to 4400/4450-4500/4585 and 4725-4825; otherwise, sustaining below 4120, gold may again fall to 4090/4050-4050/4000*/3970 and further 3885/3715-3675/3600 and 3540/3340-3080/2770 in the coming days.
Looking ahead, whatever may be the narrative, technically oil ($69.50) now has to sustain over 76.00/77.00 for a recovery to 83.00/85.00 and 90.00/91.00-92.00/93.00 and 94.00/97.00-107.00/118.00 in the coming days. On the flip side, sustaining below 76.00, oil may further fall to 74.75/73.50-71.00/70.50 and 67.00/64.00-60.00/54.00 and even 50.00-45.00 in the coming days.
Similarly, USDJPY (162.00) now has to sustain over 163.50 for a further rally to 164.00-165.00; otherwise, sustaining below 163.00-162.50, it may again fall to 161.50/161.00-160.50/160.00 and 159.50/159.00-158.00/155.00 in the coming days.
