U.S. job gains moderated in June while wage growth remained firm, showing a strong enough labor market to keep the Federal Reserve on track to raise interest rates this month.

Nonfarm payrolls increased 209,000 — the smallest advance since the end of 2020 — after downward revisions in the prior two months, a Bureau of Labor Statistics report showed Friday. The unemployment rate fell to 3.6%.

The latest figures suggest the labor market is losing some steam as high interest rates and months of sluggish consumer spending feed into concerns about the economy’s prospects. Yet with sufficiently healthy job growth and brisk wage gains, the Fed is likely to resume its series of rate hikes at its meeting later this month, following a pause in June.

“We need to see some of the tight labor market conditions ease so the Fed feels more confident that wages will begin to ease,” Lindsey Piegza, chief economist at Stifel Financial Corp., said on Bloomberg Television.

The report also showed an increasing demographic divergence in employment outcomes. The jobless rate for Black Americans jumped to 6% in June, the highest level in almost a year, and these workers accounted for almost 90% of the increase in the number of unemployed Americans in the past two months.

Black workers are “often the first to lose jobs when demand for workers eases,” said Julia Pollak, chief economist at ZipRecruiter Inc. They tend to be overrepresented in low-wage sectors that get hit first when consumer spending falters.

In August, the bureau will publish preliminary annual revisions to payroll numbers, which could show further softening for the first few months of the year.

What’s more, that hiring is increasingly becoming concentrated in a handful of sectors. A payroll diffusion index showing how spread out hiring is across industries has largely reverted to prepandemic levels after peaking in February 2022.

“It seems clear that the labor market is cooling, and if we are correct about the pending benchmark revisions, the extent to which the labor market has cooled will take many by surprise,” said Richard Moody, chief economist at Regions Financial Corp.

Friday's report showed the first time in 15 months that payrolls came in below the median estimate in a Bloomberg survey of economists. Longer-term Treasuries and the S&P 500 fell.

Hiring was seen most in health care, government and construction. Payrolls fell in retail trade and transportation and warehousing. For the prior two months, payrolls growth was revised down by a combined 110,000.

The increase in average hourly earnings followed similar gains in the prior two months, and was up 4.4% from a year earlier. The average workweek edged up.

The underemployment rate, a broader measure of labor-market slack than the headline unemployment rate, is at its highest level in almost a year as more Americans report working part-time for economic reasons. That number rose in June by the most since the immediate onset of the pandemic.

While some employers continue to struggle to attract and retain workers — which has helped keep wage growth elevated — higher interest rates and a gloomy outlook may be starting to weigh on labor demand.

“There’s more caution around hiring in general right now, and I think the part-time for economic reasons is a good indication that that’s potentially seeping into the kind of hiring we’re seeing,” said Omair Sharif, president and founder of Inflation Insights LLC.

The mismatch between labor supply and demand is coming into better balance in part due to more participation. While the overall participation rate — the share of the population that is working or looking for work — held steady, for those ages 25-54, that rate climbed to a 21-year high.

“The labor market is slowing down, but it’s doing so from a position of strength,” Nick Bunker, research director at Indeed Hiring Lab, said in a note. “Nothing is guaranteed, but the U.S. labor market continues to point toward a slower, but more sustainable pace of economic growth.”

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(With assistance from Matthew Boesler and Hannah Pedone.)