No fireworks in June jobs data as U.S. economy muddles through tariff uncertainty

Executive summary

U.S. payrolls rose by 147,000 in June, well above consensus expectations of 106,000. The previous two months' totals were revised upward by a combined 16,000, marking the first upward revision in five months. Meanwhile, the unemployment rate dipped to 4.1%.

The six-month average fell to 130,300 due to first-quarter tariff concerns, but job growth has rebounded over the past three months, averaging roughly 150,000. There’s little evidence so far that tariffs are impacting payrolls, aside from metals industries. It appears that many companies took a “wait & see” approach to tariffs rather than paring payrolls. Furthermore, job losses haven’t materialized, supporting our view that the U.S. economy is slowing, not collapsing.

Ultimately, the trend of cooling job growth continues, but not to a degree that would justify near-term rate cuts by the Federal Reserve (Fed). We remain in a “muddle-through” environment—where growth has slowed but not stalled—and expect the Fed to stay in “wait & see” mode until trends change.

Payroll trends – 6-month trend held down by 1Q tariff angst

Monthly job growth has averaged 130,300 in the past six months. The cause was the weak first quarter, which averaged 111,000, as companies braced for tariffs. Since then, job growth has rebounded, averaging roughly 150,000 over the past three months.

Private payrolls increased by 74,000, nudging the total U.S. nonfarm payrolls to 159.7 million, a fresh all-time high. Service-providing industries hired 68,000 workers last month, while goods producers added 6,000 workers

Government payrolls added an outsized 73,000 workers in June. All were on the state and local level and 63,500, or 87%, were educational, which is fairly typical during this time of the year.

Federal payrolls fell by 7,000 last month due to the Department of Government Efficiency (DOGE) initiative, with a total decrease of 69,000 since DOGE began. We’re still anticipating roughly 200,000 federal job cuts in 2025 due to DOGE initiatives (or 130K still coming). That’s far below the overly ambitious initial estimates for DOGE. Nonetheless, any federal job losses would be small relative to the total U.S. nonfarm payrolls of nearly 160 million.

A review of the major industry trends

Aside from the aforementioned government payroll gains, private payroll gains in June appeared muted.

Health care, within the education/health services industry group, maintained its status as the largest jobs creator, adding 59,000 positions, while private education services shed 8,000 position this past month.

Leisure and hospitality figures may appear low for summer, but they match the 24-month average of 19,300. In fact, hiring at restaurants and bars during the second quarter averaged 11,300 compared to -4,400 during the second quarter of 2024.

Manufacturing shed 7,000 workers in June and has cut 14,000 in the past three months. In June, metal producers and fabricators shed 3,000 positions, which we surmise is related to the doubling of steel & aluminum tariffs in early June.

The professional & business services segment also lost 7,000 workers in June. The largest chunk were private sector scientific research jobs, down 5,700, which are likely the result of the recent pullback in federal grants and funding, particularly at elite universities. Additionally, temporary help services sliced 2,600 workers in June.

Unemployment rate and wages cooled but stable

The unemployment rate fell to 4.1% after three months at 4.2%. It is slightly higher than the pre-pandemic 3-year average of 4.0%, but still low compared to the historical average of 5.7% since 1948.

The broader underemployment rate (U-6) also dipped by 0.1% in June, slipping to 7.7% and below the pre-pandemic 3-year average of 7.8%. The labor force participation rate edged down to 62.3%, which is a full percentage point below the pre-pandemic rate of 63.3%.

Average weekly hours worked fell to 34.2, below the pre-pandemic average of 34.4. Within manufacturing, hours worked were unchanged at 40.1, while overtime hours held steady at 2.9 for the fifth consecutive month.

Average hourly earnings increased by 0.2% month over month, consistent with the three-year average observed prior to the pandemic. For rank & file workers—officially known as production & nonsupervisory employees—wages rose 0.3% in June, also matching its pre-pandemic average. Annual wage growth slowed to 3.7% overall and 3.9% for rank & file workers, compared to a pre-pandemic average of 3.0% for both.

Our take

We’re encouraged by the stronger than expected job creation in June. It reinforces our view that the U.S. economy will muddle through all of the tariff uncertainty. While companies seemed to pause hiring during the first quarter amidst the height of the tariff concerns, job growth has rebounded over the past three months.

Furthermore, job losses haven’t materialized. Weekly jobless claims – the number of people applying for unemployment benefits – have been remarkably well behaved as it hovers near the pre-pandemic averages. And continuing claims – the number of people continuing to receive unemployment benefits – has climbed to 1.9 million, which is slightly above the pre-pandemic 3-year average of 1.8 million. Layoff announcements in June decreased to their lowest level in six months. These indicate that the U.S. economy is experiencing a slowdown rather than a collapse.

Looking ahead, we anticipate that the government policy backdrop will improve in the next few weeks. For instance, there should be more clarity on tariffs, albeit not fully, while Congress appears set to resolve the massive tax bill and lift the debt ceiling. Addressing these issues would help reduce economic uncertainty. This should also provide some clarity for the Fed to begin cutting rates later this year.

Alas, the U.S. remains in a “muddle-through” environment as economic data will continue to jostle about due to air pockets as demand normalizes following accelerated purchases in the early spring when consumers and businesses attempted to front-run tariffs.