U.S. Economy Adds 147,000 Jobs in June, Beating Expectations

In June 2025, the U.S. economy added 147,000 jobs, surpassing economists' expectations of 110,000 and indicating continued resilience in the labor market. The unemployment rate edged down to 4.1% from 4.2% in May. However, underlying data reveal potential challenges ahead, including a decline in labor force participation and modest wage growth.

The Bureau of Labor Statistics reported that state and local government employment saw significant growth, contributing 73,000 jobs in June. State government employment increased by 47,000, with education roles accounting for 40,000 of these positions. Local government education added 23,000 jobs. In contrast, federal government employment continued its downward trend, losing 7,000 jobs in June and totaling a reduction of 69,000 positions since January. The private sector added a modest 74,000 jobs during the same period.

The health care sector added 39,000 jobs in June, aligning with its average monthly gain of 43,000 over the past year. Conversely, the manufacturing sector experienced a decline, losing 7,000 jobs in June.

Average hourly earnings increased by 0.2% in June, resulting in a year-over-year growth rate of 3.7%, a slight decrease from 3.8% in May. The average workweek for all employees on private nonfarm payrolls remained steady at 34.2 hours.

The labor force participation rate declined to 62.3% in June from 62.4% in May, indicating a contraction in the labor force. The number of discouraged workers—those not currently looking for work because they believe no jobs are available—increased by 256,000 to 637,000.

The federal government has been implementing significant workforce reductions. As of May 2, 2025, the federal civilian workforce had decreased by 26,000 roles since the beginning of President Trump's second term, excluding the U.S. Postal Service. In total, 260,000 federal employees have taken buyouts, retired early, or been terminated.

The stronger-than-expected job growth in June has influenced market expectations regarding Federal Reserve policy. Traders have significantly reduced the likelihood of a rate cut in July, with futures indicating only a 5% chance, down from 24% prior to the employment report. Atlanta Federal Reserve President Raphael Bostic noted that adjustments to recent trade and domestic policies could take over a year to fully materialize, potentially leading to a steady rise in inflation. He emphasized the importance of maintaining the Fed's current "wait and see" strategy amidst economic uncertainties.

Following the release of the employment report, U.S. stock markets responded positively. The S&P 500 closed at 625.34, up 0.81% from the previous close. The Dow Jones Industrial Average ended at 448.09, a 0.76% increase, while the Nasdaq-100 rose by 0.98% to 556.22. The Russell 2000 also saw gains, closing at 223.08, up 0.90%.

While June's employment report presents a positive headline, the underlying data suggest a more complex and potentially concerning economic landscape. The reliance on government hiring, coupled with declines in labor force participation and wage growth, underscores the need for cautious optimism. Policymakers and economists will need to closely monitor these trends to ensure sustainable economic growth.