Inside the June Jobs Report

The jobs report for June was mixed. Job growth was solid at 147,000 and the unemployment rate edged downward to 4.1 percent. However, there were some less encouraging signs in the report: More than half the job growth came from the state and local government sectors, and wage growth slowed sharply. Also, aggregate hours fell by 0.3 percent in the month.

The drop in the unemployment rate was encouraging. Since there had been a sharp fall in reported employment in May, it seemed likely this would be reflected in higher unemployment in June. Instead, this drop was partially reversed, with employment rising by 93,000 — although employment is still 603,000 below the April 2025 level, corresponding to a 0.3 percentage point drop in the employment-to-population ratio (EPOP).

Unemployment for Black Workers Jumps to 6.8 Percent

The unemployment rate for Black workers jumped 0.8 percentage points to 6.8 percent, the highest rate since January 2022. This is two full percentage points above the all-time low hit in April of 2023. The EPOP for Black workers also fell 0.6 pp to 57.7 percent, also the lowest since January 2022.

Little Change in Employment for Most Demographic Groups

Apart from the sharp rise in unemployment for Black workers, most other groups saw little change in June. The unemployment for white workers fell from 3.8 percent to 3.6 percent, while for Asian-Americans it fell from 3.6 percent to 3.5 percent. For Hispanic workers it fell from 5.1 percent to 4.8 percent.

There was a modest reversal for college-educated workers, with the unemployment rate edging down from 2.6 percent to 2.5 percent, but that still left it 0.7 pp above the 1.8 percent low hit in September 2022.

EPOP for Prime Age Workers Rises 0.2 PP

The EPOP for prime age workers (ages 25 to 54) rose by 0.2 pp in June to 80.7 percent, reversing a decline in May. This still left the EPOP 0.2 pp below peaks hit in 2023 and 2024.

The EPOP for people between the ages of 20-24 edged down another 0.1 pp to 65.3 percent after dropping 0.8 pp in May. It now stands 2.1 pp below the peak hit in April of 2024. It looks as though young people are having difficulty getting jobs.

Share of Unemployment Due to Quits Jumps

The share of unemployment due to voluntary quits increased 2.0 pp to 11.8 percent. This reversed the drop last month. The 11.8 percent rate is still extraordinarily low given the unemployment rate. The share averaged 13.2 percent in 2018-2019.

State and Local Government Employment Dominated Job Growth

The state and local government sectors combined added 80,000 jobs in June, far more than offsetting a decline in federal employment of 7,000. Education accounted for 63,500 new jobs in June. This is likely an issue of the timing of the school year and seasonal adjustments, since it’s not plausible that governments just went on a hiring spree (The unadjusted numbers fell in June.). This means we are likely to see most of these gains reversed in future months.

Federal government employment is now down 57,500 (2.4 percent) from the January level. This job loss would not include workers who took buyouts and are still on the payroll.

Healthcare Leads Private Sector Job Growth

The healthcare sector added 39,200 jobs, which again made it by far the leading sector for job growth in the private sector. This was roughly in line with its average over the last year. Construction was also a big job gainer, adding 15,000 jobs, somewhat above its 10,000 average over the last year.

Manufacturing Loses 7,000 Jobs, Continues Downward Drift

The manufacturing sector lost 7,000 jobs in June. Employment in the sector is now 89,000 below the year ago level. Employment in motor vehicle manufacturing is 26,600 lower than the year ago level.

Other notable job losers were the scientific research sector and private education (colleges and universities). Jobs in scientific research and development fell by 5,700 in June; they are now down by more than 1.0 percent since March. They had been rising at a 1.5 percent annual rate in the last two years. Employment in private education fell 7,500 in June, although it is still up 41,300 from its year ago level. Restaurant employment rose 6,500, slightly less than its average of 10,600 in the year to May.

Wage Growth Slows Sharply

Perhaps the biggest negative in this report is a slowing in the pace of wage growth. The annualized rate of growth comparing the last three months (April-June) with the prior three (January-March) is just 3.2 percent, down from 3.7 percent year-over-year. The monthly data are erratic, but taking three month averages limits the impact of a single month’s data. While it is hard to determine the precise size of the slowing, the direction seems clear and if tariffs push up the pace of inflation, this would mean very limited real wage growth.

Index of Aggregate Hours Falls 0.3 Percent

The index of aggregate hours fell sharply, as most sectors reported a drop in the length of the average workweek. Sometimes this can be attributed to a weather event, but there is nothing obvious that stands out in the reference period in June. Hours data are erratic, but this drop could reflect a drop in labor demand which will later show up in employment.

The weakness in hours could be a positive from a productivity standpoint. Although with the drop in GDP in the first quarter, we may be seeing both weak GDP growth and weak hours growth translating into mediocre productivity growth. The pace of productivity growth is a huge deal since it directly affects inflation and determines the rate of non-inflationary wage growth.

June Data Raise Several Warning Signs

While the topline numbers in the report are positive, there are several items that provide serious  grounds for concern about the future course of the labor market. The most important is the evidence for slowing wage growth. It seems clear that the pace of wage growth has slowed from where it was in 2023-2024. This will translate into slower real wage growth, especially if tariffs increase the rate of inflation.

The other big warning sign is the drop in the length of the average workweek. This likely reflects a weakening in the demand for labor. If this is the case, we are likely to see weaker job growth in the months ahead. Also, the fact that close to half the June growth was likely due to quirks of seasonal adjustment in education almost guarantees weaker growth ahead.

This first appeared on Dean Baker’s Beat the Press blog.