The labor market is not one number: June ‘25 report shows mixed signals

The June employment report delivered a cautiously optimistic picture of the U.S. labor market, with job growth slightly exceeding expectations while unemployment edged lower. However, beneath the headline numbers lies a more complex story of government workforce shifts, concerning trends in long-term unemployment, and a labor market that continues to send mixed signals about its underlying health.

Headline numbers beat low expectations

The economy added 147,000 jobs in June, essentially matching the 12-month average of 146,000 monthly gains. While this figure would have been considered modest in previous economic cycles, it exceeded the lowered expectations many economists had heading into the report. The unemployment rate improved slightly to 4.1 percent, down from 4.2 percent in May, marking the lowest level since February 2025.

This modest job growth represents a stabilization after concerns about economic headwinds from ongoing tariff policies and government workforce reductions. The consistency with the 12-month average suggests the labor market has found a new equilibrium, albeit at a slower pace than the robust growth seen in previous years.

Government employment: two sectors

The most striking feature of June’s employment landscape was the divergence within government employment. The state government led overall job gains with 47,000 new positions, primarily driven by education hiring (+40,000). Local government education also continued its upward trend, adding 23,000 jobs.

However, federal government employment continued its decline, losing another 7,000 positions in June. This brings total federal job losses to 69,000 since January 2025, representing a significant workforce reduction that appears to be accelerating. This trend aligns with broader government efficiency initiatives but raises questions about the capacity to deliver essential services and the economic impact on regions with high concentrations of federal employment.

Private sector shows strength

Health care remained a bright spot in the private sector, adding 39,000 jobs in June, consistent with its 12-month average of 43,000 monthly gains. The sector’s growth was broad-based, with hospitals (+16,000) and nursing/residential care facilities (+14,000) leading the way. This continued strength reflects both demographic trends and ongoing health care infrastructure investments.

Social assistance employment also showed resilience with 19,000 new jobs, primarily in individual and family services (+16,000). This growth pattern suggests continued demand for support services, potentially reflecting ongoing economic pressures on American families.

Notably, most other major industries showed little change, indicating a labor market that has largely plateaued rather than contracted. This stability across sectors suggests businesses are maintaining current workforce levels while remaining cautious about expansion.

Concerning developments in long-term unemployment

While the overall unemployment rate improved, a troubling trend emerged in long-term unemployment. The number of people unemployed for 27 weeks or more increased by 190,000 to 1.6 million in June, representing 23.3 percent of all unemployed individuals. This sharp increase largely offset improvements seen in the previous month and signals potential structural challenges in the labor market.

The rise in long-term unemployment is particularly concerning as it often indicates skills mismatches, geographic barriers to employment, or other factors that prevent efficient job matching. This trend warrants close monitoring as it can become self-reinforcing, with longer unemployment spells leading to further skill degradation and reduced employment prospects.

Labor force participation and marginally attached workers

The labor force participation rate held steady at 62.3 percent, while the employment-population ratio remained at 59.7 percent. These figures continue to lag pre-pandemic levels, suggesting that labor market recovery remains incomplete. The stability in these metrics indicates that the labor market is neither drawing in new participants nor losing existing ones at a significant rate.

More concerning was the increase in marginally attached workers, which rose by 234,000 to 1.8 million. Within this group, discouraged workers, those who have stopped looking for work because they believe no jobs are available, increased by 256,000 to 637,000. This substantial increase suggests that some workers are becoming increasingly pessimistic about their job prospects, potentially indicating underlying weakness in labor demand.

Wage growth and working hours

Average hourly earnings rose by 0.2 percent in June to $36.30, maintaining the 3.7 percent year-over-year growth rate. This wage growth, while modest, continues to outpace inflation, suggesting real wage improvements for American workers. However, the pace of wage growth has moderated from previous periods, indicating reduced labor market tightness.

The average workweek for private non-farm employees declined by 0.1 hour to 34.2 hours, while production and non-supervisory employees saw their workweek fall by 0.2 hour to 33.5 hours. This reduction in working hours could signal that employers are managing labor costs through hour reduction rather than layoffs, a pattern often seen during economic uncertainty.

Demographic disparities persist

The labor market continues to show significant disparities across demographic groups. While the unemployment rate for adult women improved to 3.6 percent and for whit workers to 3.6 percent, the rate for black workers increased to 6.8 percent. Adult men maintained a 3.9 percent unemployment rate, while teenagers, Asian Americans, and Hispanic Americans showed little change at 14.4 percent, 3.5 percent, and 4.8 percent respectively.

These persistent disparities highlight the uneven nature of labor market recovery and suggest that targeted interventions may be needed to ensure broad-based economic improvement.

Looking forward

The June employment report presents a labor market that is neither accelerating nor decelerating dramatically, but rather finding a new equilibrium characterized by modest growth and persistent challenges. The resilience shown in the face of government workforce reductions and ongoing economic uncertainty is encouraging, but several warning signs deserve attention.

Key metrics to monitor in coming months include:

Long-term unemployment trends: The sharp increase in June requires close watching to determine if this represents a temporary fluctuation or the beginning of a structural deterioration.

Federal government employment: Continued job losses in this sector will have multiplier effects on local economies and may signal broader fiscal policy impacts.

Marginally attached workers: The substantial increase in discouraged workers could indicate underlying weakness in labor demand that headline unemployment figures don’t capture.

Working hours: Further reductions in average hours worked could signal that employers are preparing for economic softening.

The labor market’s current state reflects an economy in transition, navigating policy changes, demographic shifts, and evolving business conditions. While the headline numbers suggest stability, the underlying dynamics point to a more complex picture that requires nuanced analysis rather than simple optimism or pessimism.