Headlines Mask a Lower-than-expected rise by June’s Private-Sector Jobs
You should never accept a corporate earnings report at face value. At a minimum, extraordinary gains and charges deserve consideration. In other words, it’s worth discovering what drives the headline news.
The problem is that the algos and perhaps artificial intelligence do not dig too deep after receiving the headline news. Will AI ever be able to critique itself? Will AI end up being hopelessly superficial when analyzing data?
State & local governments explain why June’s total jobs topped expectations …
Yes, June’s preliminary estimate of an addition of 147,000 jobs to nonfarm payrolls exceeded the 110,000 jobs gain predicted by the consensus. However, June’s greater-than-expected jobs count was wholly the consequence of an unsustainably large addition of 73,000 jobs to government payrolls. June’s 74,000 jobs increase for private-sector payrolls was well below the consensus forecast of 110,000 new private sector jobs. (The consensus foresaw June’s government payrolls as being unchanged from May)
Private-sector jobs fell by -5,000 outside of healthcare, social work, leisure, and hospitality …
By now, you probably know which category led private-sector jobs growth – the 59,000 jobs added to health care & social assistance payrolls. Next came the 20,000 jobs added to leisure and hospitality, followed by construction’s 15,000 jobs increase.
Private-sector jobs fell by -5,000 jobs excluding healthcare, social assistance, leisure and hospitality.
Thus, the 79,000 jobs created by the relatively low paying categories of health care & social assistance and leisure & hospitality more than accounted for June’s addition of 74,000 jobs to private-sector payrolls. And that may help to explain June’s -0.1% monthly dip by the average weekly earnings of private-sector employees.
By private-sector jobs category, second-quarter 2025’s average weekly earnings and their respective year-on-year growth rates were $1,159 for health care & private education (up 2.5%), $582 for leisure & hospitality (up 4.2%), and $1,390 for all other private-sector workers (up 4.2%). The second quarter’s average weekly earnings for all private-sector workers grew by 3.8% annually to $1,240.
State & local governments added 64,000 education jobs …
The most shocking aspect of June’s jobs report was the addition of 73,000 jobs to government payrolls.
The growth of government payrolls in June was more than accounted for by the addition of 80,000 state & local government jobs, wherein education supplied 64,000 of the new state & local government hires. A misfiring by seasonal adjustment may explain June’s surge in state & local government education jobs. If true, the number of jobs in state & local government education will likely drop in July.
Since the end of 2024, the addition of 204,000 jobs in state & local government included a 101,000 increase in the number of education jobs.
June’s -7,000 drop was the fifth straight monthly decline by federal government payrolls. Since January 2025, federal payrolls have shrunk by -69,000 jobs.
Labor force dropouts help to trim June’s jobless rate …
The unexpected dip by the unemployment rate from May’s 4.2% to June’s 4.1% owed something to an increase in the number of labor force dropouts in view of how June’s -222,000 drop in the number of unemployed individuals overlapped a -130,000 person reduction in the labor force. In other words, the unemployment rate will be lower than otherwise if some of the unemployed quit looking for work and effectively drop out of the labor force.
Since June 2024, health care and social work jobs advance by 3.7%, all other jobs edge higher by 0.7% ...
Jobs growth was skewed towards health care and social assistance during the 12-months-ended June 2025. Though health care and social assistance accounted for 14% of the total number of outstanding jobs during the year-long span ending with June 2025, health care and social assistance supplied a disproportionately large 46% of all jobs added to nonfarm payrolls from June 2024 to June 2025.
In terms of year-on-year growth rates, June’s count of health care and social work jobs grew by 3.7%, which was much faster than the 0.7% rise of all other jobs.
Tariff-induced rise by factory output may not prompt big increase in factory jobs …
Any forthcoming increase in manufacturing capabilities may be joined by a relatively small rise in the number of manufacturing jobs.
For example, the Biden administration, congress, and state governments supplied outsized tax incentives and subsidies to boost the US’ production of microchips, EVs, batteries, and green energy. From the 12-months-ended May 2022 through the 12-months-ended May 2025, current-dollar expenditures on the construction of manufacturing facilities soared higher by a cumulative 149%, or from $94 billion to $233 billion. Nevertheless, from May 2022 to June 2025, the number of manufacturing jobs barely rose by a cumulative 0.1%, or just 11,000 jobs. The latter equates to an average addition of 300 jobs per month to factory payrolls over a 37-month span.
Hotels and restaurants supplied 84% of May’s jump in job openings …
May’s count of job openings unexpectedly rose by 374,000 from April to May. However, May’s jump was more than accounted for by the increases of just four categories.
Here are the four and their respective share of the overall increase of 374,000: (i) accommodation & food services – 314,000 and 84.0%, (ii) finance & insurance – 91,000 and 24.3%, (iii) health care & social assistance – 60,000 and 16.0%, and (iv) transportation, warehousing, & utilities – the same 60,000 and 16.0%. Thus, the top four categories supplied 525,000, or 140.3%, of May’s addition of 374,000 job openings.
Despite May’s narrowly focused upturn, job openings are still in a declining trend. As inferred from the following chart, payrolls might be lucky to avoid an outright contraction.
Lackluster pace likely for June’s consumer spending …
After edging higher by 0.1% from March to April, real consumer spending sank by -0.3% monthly in May. It’s unlikely that June’s real consumer spending fully recovered from May’s -0.3% monthly drop. June’s seasonally adjusted unit sales of cars and light trucks dipped from May’s already subpar pace of 15.6-million units to 15.3-million units.
The quarter-to-quarter annualized sequential drop by unit sales of light motor vehicles deepened from Q1-2025's -2.6% to Q2-2025's -8.8%. Also, the year-over-year growth rate for the seasonally adjusted unit sales of cars and light trucks slowed from Q1-2025's 6.4% to Q2-2025's 2.9%.
In current-dollar terms, May incurred a -$29 billion monthly drop seasonally-adjusted consumer spending that included setbacks of (i) -$49 billion for motor vehicles & parts, (ii) -$19 billion for gasoline & other energy products, (iii) -$11 billion for restaurants & hotels, (iv) -$6 billion for financial services & insurance, and (v) -$4 billion for transportation services.
Consumer spending five biggest monthly increases from April to May included the (i) $14 billion for housing & utilities, (ii) $11 billion for health care, (iii) $9 billion for nondurable goods excluding food, gasoline, and apparel, (iv) $7 billion for other services (namely personal care, laundry, and maintenance), and (v) $5 billion for apparel.
Atypically slow spending growth expected for US’ major export markets …
A lackluster world economy will (i) reduce the demand for US exports, (ii) reduce the foreign currency price of exports to the US; (iii) heighten the incentive to export to the US; (iv) limit the upside for the prices of internationally traded products; and (v) rein in the foreign currency earnings from the foreign operations of US multinationals.
The table below provides consensus projections for the 2025 real GDP growth of the US’ major export customers. Sluggish expenditures outside the US ought to the prices of tradable goods and services. In turn, both US consumer price inflation and US interest rates are likely to be lower than currently anticipated.
Downshifting by expenditures reduces tariff-related inflation risks …
Tariffs would be more likely to trigger an extended stay by rapid price inflation if tariffs were being raised amid a strengthening labor market and accelerating household expenditures.
Much to the contrary, the growth rates for jobs, average hourly earnings, and employee compensation have been slowing. Moreover, June's unemployment rate of 4.1% was up from a Q1-2023 low of 3.5% and real consumer spending’s yearly increase eased from September 2024’s 3.2% to May 2025’s 2.2%.
This statistical record shows core PCE price index inflation climbs higher when jobs growth, wages & salaries, and payrolls accelerate, the unemployment rate sinks, and real consumer spending quickens.
For example, when the annual rate of core PCE price inflation jumped up from the 1.4% of Q4-2020 to the 5.6% of Q1-2022, the annual rate of growth for wage & salary income soared from Q1-2021’s 2.6% to Q1-2022’s 10.3%, as payrolls expanded by 587,000 jobs per month, on average, during January 2021 through March 2022. The unemployment rate would plunge from December 2020’s 6.7% to March 2022’s 3.7%.
Compensation of government workers outpaces that of private-sector workers by wide margin …
In many ways, June’s report on personal income and personal spending was lackluster. Through the first five months of 2025, personal income rose by 4.7% year over year. A comparably measured 8.0% annual increase by transfer payments differed radically from the accompanying 4.4% annual increase by wage and salary income. January-May 2025’s annual increase by wage and salary income consisted of a 4.2% annual increase for private sector wages and salaries and a 5.5% advance for government wages and salaries. Excluding transfer payments, the January-May 2025 year-over-year increase by personal income drops to 4.0%.
Real consumer spending outruns real after-tax income …
Real disposable personal income posted an annual increase of 1.8% during January-May 2025. Disposable personal income is roughly equivalent to after tax personal income. In current-dollar terms, disposable personal income rose by 4.3% annually through 2025’s first five months. The latter was slower than the 5.1% annual increase by current-dollar personal spending.
Real personal income excluding transfer payments increased by 1.5% annually during January-May 2025. Real personal income excluding transfer payments is prior to the payment of taxes. January May's 2.7% annual increase by real consumer spending outran the comparably measured increases of both real disposable personal income and real personal income excluding transfer payments.
Q4-2025’s real consumer spending may be no higher than 1.2% yearly …
Real personal spending is expected to slow considerably during 2025’s second half according to Bloomberg’s late-June consensus forecast. The late-June consensus predicts real consumer spending will rise by 1.0% annualized from Q2-2025 through Q4-2025. According to this view, Q4-2025’s real consumer spending will be no higher than 1.2% year-on-year.
If Q4-2025’s annual rate of PCE price index inflation conforms to the consensus projection of 3.1%, then the yearly growth rate of Q4-2025’s current-dollar consumer outlays should approximate 4.3%. The latter is not that far under the 5.2% yearly growth rate recently predicted for the S&P 500 revenues of 2025’s final quarter.
Like payrolls, US manufacturing activity suffers from a lack of breadth …
January-May 2025’s 3.2% year-over-year increase by new orders received by US manufacturers drops to 0.3% after excluding the AI-driven 16% advance for computer equipment orders and the 164% surge by volatile new bookings for commercial aircraft & parts.
Moreover, January-May 2025’s 0.7% annual rise by shipments of goods manufactured in the US switches to a -0.2% dip after excluding the comparably measured increases of roughly 15% for computer equipment shipments and 50% for shipments of commercial aircraft & parts.
Only four of the S&P 500’s 11 major corporate groups outran the S&P 500 during Q2-2025 …
