Private sector adds 98,000 jobs in June, missing estimates

The weakest private-sector hiring in five months collided with sticky inflation data Wednesday, leaving the Federal Reserve with conflicting signals on its dual mandate just weeks before its next rate decision.

U.S. companies added 98,000 workers in June, ADP data showed Wednesday, falling short of the 118,000 consensus estimate and deepening a deceleration that complicates the Fed's inflation fight as core PCE sits at 3.4%.

"The pace of hiring is telling a story of both supply and demand," said Nela Richardson, chief economist at ADP. "We know it's taking people longer to find work, but there also are signs of labor supply constraints in certain industries."

The miss dragged the three-month average payroll gain to roughly 107,000, down from 170,000 in the first quarter. Education and health services led with 48,000 new positions, while natural resources and mining shed 5,000. Pay for job-stayers rose 4.4% from a year earlier, and job-switchers saw 6.6% gains. The 10-year Treasury yield rose 4.8 basis points Tuesday to around 4.17%, while the dollar pushed the yen to a 40-year low of 162.77.

The data lands ahead of Thursday's nonfarm payrolls report — the last major employment print before the Fed's July 28-29 meeting. OIS markets now price a 67% probability of a rate hike in September, up from 20.5% a month ago, even as the labor market shows clear signs of softening.

The divergence between a cooling jobs market and persistent inflation creates a difficult backdrop for Chair Kevin Warsh, who reiterated the central bank's commitment to price stability at the ECB Forum in Sintra, Portugal, on Wednesday.

"We've all looked around, and we've seen that prices are too high," Warsh said. "If there were people in the household or the business sector and the financial markets who thought that this central bank was going to be comfortable with an inflation objective above 2%, well, I guess they'd be disappointed."

The Fed's preferred inflation gauge, the core Personal Consumption Expenditures index, rose to 3.4% in May — the highest since October 2023. Fed officials' latest projections see core inflation at 3.3% by year-end, up from the 2.7% forecast in March. Oil prices have tumbled since President Trump's tentative Iran deal, which could pull headline inflation lower in coming months, but core measures remain stubbornly elevated.

Labor Market Softening Meets Sticky Prices

The last time the three-month average of private payrolls ran this low was in mid-2024, when the Fed was preparing to cut rates. This time, the calculus is reversed: inflation is running well above target, and Warsh has signaled no urgency to ease. At his June 17 press conference, he declined to offer forward guidance, telling reporters he wanted the committee to have "a good family fight" behind closed doors.

Jeff Pierce of Charles Schwab said the June jobs data signals "some surprise weakness on the Fed's employment side of the dual mandate," though he does not believe it points to recession. That view aligns with the broader narrative of a softening — not collapsing — labor market, where hiring slows but layoffs remain contained.

The dollar's strength adds another layer. The trade-weighted dollar has risen sharply since the June Fed meeting, with positioning data from the Commodity Futures Trading Commission showing markets near maximum long-dollar exposure. A strong dollar acts as a de facto tightening mechanism, compressing import prices and weighing on multinational earnings — a dynamic the Fed must weigh against domestic inflation pressures.

Thursday's BLS nonfarm payrolls report will be the critical data point. Economists expect a gain of roughly 190,000 jobs, though the ADP miss raises downside risk. If the official number undershoots by a similar margin, pressure will mount on the Fed to acknowledge the labor market slowdown — even if it cannot yet act on it.

This article is for informational purposes only and does not constitute investment advice.