Solid US job growth masks weakness underneath
Despite the bigger-than-expected rise in payrolls, job growth is slowing, mostly reflecting tepid hiring
[WASHINGTON] US job growth was unexpectedly solid in June, but nearly half of the increase in nonfarm payrolls came from the government sector, with private sector gains slowing considerably as industries like manufacturing and retail grappled with the Trump administration’s aggressive tariffs on imports.
While the Labor Department’s closely watched employment report also showed the unemployment rate falling to 4.1 per cent last month from 4.2 per cent in May, that was partly because some people left the labour force. The average workweek was shorter last month, suggesting that businesses were probably reducing hours amid rising economic headwinds.
“Although the overall number of jobs was very strong, the weakness was broad-based across the private sector,” said Eugenio Aleman, chief economist at Raymond James. “The labour market continued to weaken in June, which is in line with our view and should reignite the conversation regarding the Federal Reserve’s interest rate path.”
Nonfarm payrolls increased by 147,000 jobs last month after an upwardly revised 144,000 advance in May, the Labor Department’s Bureau of Labor Statistics said on Thursday (Jul 3). Economists polled by Reuters had forecast payrolls rising 110,000 following a previously reported 139,000 gain in May.
Estimates ranged from an increase of 50,000 to 160,000 jobs. The report was published a day early because of the Independence Day holiday on Friday. Despite the bigger-than-expected rise in payrolls, job growth is slowing and concentrated in a few sectors.
Government employment rose by 73,000, boosted by a 40,000 increase in state government education, which economists brushed off as a seasonal quirk related to the end of the school year. Local government education increased 23,000. Federal government job losses continued, with 7,000 positions lost, and employment is now down by 69,000 since reaching a recent peak in January.
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Private payrolls increased by 74,000 jobs, the fewest since October of 2024. Healthcare added 39,000 jobs, spread across hospitals nursing and residential care facilities. Social assistance employment increased by 19,000. Outside these non-cyclical sectors, job gains were weak.
US stocks fell. The US dollar advanced against a basket of currencies. US Treasury yields rose.
Economists say President Donald Trump’s focus on what they call anti-growth policies, including sweeping tariffs on imported goods, mass deportations of migrants and sharp government spending cuts, has changed the public’s perceptions of the economy.
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Business and consumer sentiment surged in the wake of Trump’s victory in the presidential election last November in anticipation of tax cuts and a less stringent regulatory environment before slumping about two months later.
Manufacturing shed 7,000 jobs, while wholesale trade lost 6,600 positions. Professional and business services payrolls decreased 7,000. Retailers added a paltry 2,400 jobs.
The average workweek fell to 34.2 hours from 34.3 hours in May. The unemployment rate fell from 4.2 per cent in May. Economists had expected the jobless rate to tick up to 4.3 per cent.
Indicators, including the number of people filing for state jobless benefits and receiving unemployment checks, have pointed to labour market fatigue after a strong performance that shielded the economy from recession as the US central bank aggressively tightened monetary policy to combat high inflation.
Most economists expect the jobless rate will rise through the second half of this year, and potentially encourage the Fed to resume its monetary policy easing cycle in September.
Some economists, however, see limited scope for the unemployment rate to rise as the immigration crackdown shrinks the labour pool. With the White House having revoked the temporary legal status of hundreds of thousands of migrants, economists said fewer than 100,000 additional jobs per month would likely be needed to keep the jobless rate stable.
The Fed last month left its benchmark overnight interest rate in the 4.25-to-4.50 per cent range, where it has been since December. Fed chair Jerome Powell on Tuesday reiterated the central bank’s plans to “wait and learn more” about the impact of tariffs on inflation before lowering rates again. REUTERS
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