Government hiring props up June job gains amid headwinds
U.S. employers added 147,000 jobs in June, surpassing expectations, but nearly half of those came from government hiring, raising concerns about the strength of the private sector. The Labor Department’s report, released a day early due to the holiday, showed the unemployment rate dropped to 4.1%, largely due to a shrinking labor force.
Private-sector job creation slowed to just 74,000 positions, the weakest since October 2024, while government employment surged by 73,000. Economists say the gains in state and local education are likely seasonal and could reverse in July. Federal jobs continued to decline, reflecting ongoing budget cuts under the Trump administration.
Signs of a cooling labor market
Despite the headline gain, key indicators suggest labor market momentum is waning. The average workweek shortened to 34.2 hours, and fewer industries reported job gains. Wage growth also moderated, with average hourly earnings rising just 0.2%, bringing the annual increase down to 3.7%.
Notably, long-term unemployment rose by 190,000, and discouraged jobseekers increased by 256,000. The labor force participation rate fell to 62.3%, with declines among both foreign- and native-born workers. Economists attribute part of the drop to Trump’s immigration crackdown, which has reduced the available labor pool.
Sector breakdown: Healthcare strong, manufacturing weak
Healthcare led private hiring with 39,000 new jobs, while social assistance added 19,000. However, many cyclical sectors showed weakness. Manufacturing lost 7,000 jobs, and wholesale trade shed 6,600 positions. Professional services fell by 7,000, and retail barely added 2,400 jobs. Transportation and warehousing gained 7,500, while construction rose by 15,000.
The breadth of hiring weakened, with only 49.6% of industries reporting growth, down from 51.8% in May. Employers are becoming more cautious, with surveys showing many opting to backfill roles internally rather than hire new staff amid uncertainty over fiscal policy and tariffs.
Fed likely to wait before cutting rates
While the June numbers may not prompt the Federal Reserve to cut rates this month, the growing weakness in private hiring is expected to influence policy later in the year. Most economists now see the next rate cut coming in September or December.
“The private sector was clearly losing momentum in the latter part of the second quarter,” said Brian Bethune of Boston College. “That does not augur well for the performance of the economy in the third quarter.”
Markets reacted positively to the report, with stocks rising and Treasury yields climbing. Still, economists warn that unemployment may rise later this year if hiring fails to rebound and participation continues to slide.
