News of the week summary - 07/06/2026

 American jobs beat expectations for the fourth straight month

172,000 jobs were added to the U.S. economy in May, more than double the consensus forecast of around 80,000 and broadly in line with the 179,000 gain recorded in April, which was itself revised higher. The unemployment rate held steady at 4.3 percent, and average hourly earnings rose 3.4 percent over the past year, comfortably below the April inflation reading of 3.8 percent. On the headline, this was a strong report, and it pushed Treasury yields higher and shifted market expectations firmly toward a rate hold at new Federal Reserve Chair Kevin Warsh's first policy meeting later this month.

The picture is more complicated beneath the surface. Leisure and hospitality accounted for 70,000 of the 172,000 jobs added, and local government contributed a further 55,000. Strip those two sectors out and the rest of the economy added roughly 47,000 jobs; financial services actually shed 22,000 positions. The share of unemployed people who have been out of work for 27 weeks or more rose to 27.5 percent, its highest level this cycle, suggesting that people who lose jobs are taking significantly longer to find new ones. This is sometimes described as a "low-hire, low-fire" labor market: companies are not laying off workers in large numbers, but they are also not hiring freely outside a handful of sectors.

For the Fed, the report provides clear cover to hold rates at the current range of 3.50 to 3.75 percent when it meets on June 17. With headline inflation still above target, wage growth cooling, and hiring narrow in its distribution, there is little in this data that argues for either a cut or an immediate hike. What the report does suggest is that the economy is absorbing the energy shock from the Strait of Hormuz disruption better than many feared in early spring, at least for now.

Washington unveils its tariff succession plan

The week opened with a significant trade policy development: on June 2, the U.S. Trade Representative proposed new tariffs of 10 to 12.5 percent on imports from 60 economies, citing each country's failure to effectively ban goods produced with forced labor. The announcement represents the most consequential trade action since the Supreme Court struck down the administration's broad tariffs under emergency powers in February.

The legal architecture matters here. That February ruling blocked tariffs imposed under the International Emergency Economic Powers Act, the statute the administration had used to justify sweeping import levies on most of America's trading partners. The replacement that followed, a 10 percent global surcharge under a different statute called Section 122, is legally capped at 150 days and expires in July. The new Section 301 investigation, by contrast, rests on a law with no inherent time limit and no rate ceiling, making it a potentially more durable vehicle for the administration's trade objectives. The proposed rates of 10 to 12.5 percent closely mirror the Section 122 surcharge, suggesting the aim is continuity rather than escalation.

Europe's service sector contracts for a second month

The final May purchasing managers' index figures for the eurozone, published at the start of the week, confirmed that private sector activity is contracting at the fastest pace in two and a half years. The composite output index, which combines manufacturing and services, was revised to 48.5 for May, below the 50 threshold that separates expansion from contraction, and down from 48.8 in April. Services drove the deterioration, with the services activity index coming in at 47.7, its second month below 50. The first back-to-back months of contraction in European private sector services since late 2024.

The divergence between manufacturing and services within the eurozone is revealing. Manufacturing has stayed just above contraction territory, partly because energy-intensive factories often have supply contracts that delay the full pass-through of higher prices. Services companies, which employ large numbers of people and rely on household spending, are feeling the energy shock more directly: higher gas bills leave households with less to spend at restaurants, hotels, and retail outlets. Export orders fell at the quickest pace in five months, a sign that the eurozone is also losing ground in global markets. Employment in the services sector declined for the first time since early 2021.

Input cost inflation remained sharp, with price pressures at the highest levels since late 2022. The European Central Bank faces the same difficult trade-off confronting central banks globally this year: inflation argues for tighter policy, but declining activity argues for caution. Its rate decision, due in mid-June, will be one of the more consequential of the year.

India holds rates but downgrades its outlook

India's central bank, the Reserve Bank of India, kept its benchmark repo rate unchanged at 5.25 percent at the conclusion of its June 3 to 5 policy meeting, a decision that was in line with market expectations. It was the third consecutive hold at this level. What caught more attention was the accompanying shift in forecasts: the RBI lowered its GDP growth projection for the fiscal year 2026/27 to 6.6 percent, down from its earlier estimate of 6.9 percent, while raising its inflation forecast to 5.1 percent, up from 4.6 percent. The central bank cited higher prices for liquefied petroleum gas, base metals, plastics, and rubber as primary drivers of the revised inflation outlook.

India's exposure to the Middle East energy shock is acute. The country imports roughly 85 percent of its crude oil, much of it traditionally sourced from the Gulf, and disruptions to tanker traffic through the Strait of Hormuz have added significantly to import costs while also weakening the rupee. A weaker currency raises the cost of all imports, including the energy that powers industry and cooking fuel for hundreds of millions of households. The RBI's neutral stance reflects a genuine policy dilemma: cutting rates to support growth would risk stoking inflation further, while raising them to defend the rupee and contain prices would risk slowing an economy that still relies heavily on domestic investment and consumption.

The downward revision to India's growth outlook is a reminder that, even for economies often described as structurally insulated from Middle Eastern volatility, the knock-on effects of an energy price shock of this magnitude are difficult to avoid.

Eurozone manufacturing holds on, just

Partly offsetting the gloomier services data, the final May manufacturing PMI for the eurozone came in at 51.6, down from April's near four-year high of 52.2 but marking a fourth consecutive month of expansion. Input prices and output charges rose at multi-year highs, reflecting the surge in industrial commodity costs flowing from the conflict's impact on global supply chains. Delivery times extended at their worst pace since June 2022, as supply chain disruptions rippled through the industrial base. Factory employment continued to decline even as production held up, a pattern that suggests companies are responding to uncertainty by running existing capacity harder rather than committing to new hires.

The resilience of eurozone manufacturing, even relative, stands in contrast to the weakening in services noted above. Both stories share the same underlying driver: an energy shock that raises costs for all producers but transmits unevenly depending on a sector's cost structure and exposure to household demand. The question for the months ahead is whether manufacturing can sustain its marginal expansion if the services sector's decline begins to weigh on broader business confidence.