Weekly Update 07/03/2025: US Employment Report Shows 147,000 Jobs Added in June as Unemployment Rate Drops to 4.1%
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Domestic Economic News
US job growth exceeded expectations in June, driven by a boost in public education hiring that helped bolster the labor market in the slowing economy. Payrolls increased 147,000 last month, driven by a jump in state and local government employment, according to a Bureau of Labor Statistics report out Thursday. The unemployment rate fell to 4.1% as participation declined. Private payrolls rose just 74,000 in June, the least since October and largely due to health care. Despite slower economic activity and escalating uncertainty in the first half of the year, businesses have largely been reluctant to reduce headcount. In early trading Thursday after the release of the data, Treasury yields, the dollar and stock-index futures rose after the figures took the pressure off the Federal Reserve to lower interest rates at the end of this month. Fed Chair Jerome Powell has said there is no rush to reduce borrowing costs until there is more clarity about the impact of tariffs on inflation.
US factory activity contracted in June for a fourth consecutive month as orders and employment shrank at a faster pace, extending the malaise in manufacturing. The Institute for Supply Management’s manufacturing index edged up 0.5 point last month to 49, according to data released Tuesday. Readings below 50 indicate contraction. A measure of prices paid for raw materials showed slightly faster inflation. Bookings contracted by the most in three months and have been shrinking for the past five months, likely a reflection of higher tariffs and a general slowdown in the economy. An index of order backlogs fell 2.8 points, the most in a year, to 44.3. Backlogs have contracted a record 33 straight months. Government figures last week showed consumer spending declined in May by the most since the beginning of the year. The drop followed the weakest quarter for personal consumption since the onset of the pandemic. Tepid demand and shrinking order backlogs help explain a faster rate of decline in factory employment. The ISM gauge dropped to a three-month low. It’s also contracted five straight months. “The employment continuing to contract, you could look at it as companies continue to do the right thing to right size, their cost structure against a lack of new orders and backlogs,” Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said on a call with reporters.
US job openings unexpectedly rose in May to the highest level since November, largely fueled by leisure and hospitality, and layoffs declined, pointing to a stable labor market despite economic uncertainty. Available positions increased by 374,000 to 7.77 million, according to Bureau of Labor Statistics data published Tuesday. That exceeded all estimates in a Bloomberg survey of economists. Vacancies in the hospitality sector accounted for three quarters of May openings. The finance, transportation and warehousing industries as well as health care also saw more moderate gains. The May gain brought openings roughly in line with last year’s average. However, the increase was concentrated in one industry and openings in other sectors were more mixed. That suggests employers are growing cautious about expanding their staff while at the same time mostly holding onto their existing workers. “Despite the headline beat, we suspect underlying demand for new workers continues to recede amid growing signs of consumer spending fatigue, which should help to offset the upward pressure on inflation stemming from tariffs in the coming months,” Wells Fargo & Co. economists Sarah House and Nicole Cervi said in a note.
Employment at US companies fell in June for the first time in more than two years, reflecting a drop in services payrolls that may raise concerns about a more pronounced labor market slowdown. Private-sector payrolls decreased 33,000 last month after a downwardly revised 29,000 gain in May, according to ADP Research data released Wednesday. None of the economists in a Bloomberg survey of economists expected a decline. “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” Nela Richardson, chief economist at ADP, said in a statement.
President Donald Trump said he had reached a trade deal with Vietnam following weeks of intense diplomacy between the nations and ahead of a deadline next week that would have seen higher tariffs imposed on the country’s imports. A 20% tariff will be placed on Vietnamese exports to the US, with a 40% levy on any goods deemed to be transshipped through the country, Trump said in a social-media post on Wednesday. Trump said that Vietnam had agreed to drop all levies on US imports. The president said he had secured the deal after discussions with Communist Party chief To Lam. Vietnam’s Ministry of Foreign Affairs said in a statement that Trump pledged to continue cooperating “in resolving issues affecting bilateral trade relations” during the leaders’ call Wednesday and that To Lam proposed that the US recognize Vietnam as a “market economy and remove export restrictions on certain high-tech products.” The deal with Vietnam would be just the third announced following agreements with the UK and China, as trading partners race to cut agreements with the US ahead of a July 9 deadline. Trump had imposed a 46% duty on Vietnam as part of his initial rollout of so-called reciprocal tariffs in early April that were levied on dozens of countries, but were then pared back to 10% to allow time for negotiations. We will keep you posted as more details come out on continued trade negotiations.
Interest Rate Insight and the Fed
Federal Reserve Chair Jerome Powell repeated that the US central bank probably would have cut rates further this year absent President Donald Trump’s expanded use of tariffs. “In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said Tuesday on a panel alongside other prominent central bank leaders moderated by Bloomberg’s Francine Lacqua. “We think that the prudent thing to do is to wait and learn more and see what those effects might be,” he added. Still, when asked if July were too soon for a rate cut, Powell didn’t rule out the possibility. “We are going meeting by meeting,” he said at the European Central Bank’s annual Forum on Central Banking in Sintra, Portugal. “I wouldn’t take any meeting off the table or put it directly on the table. It’s going to depend on how the data evolve.” The Federal Open Market Committee next meets July 29-30 in Washington. The Fed chief said he expects the impact of tariffs to show up in inflation data in coming months, while acknowledging that uncertainties remain.
Impactful International News
Euro-area inflation settled at the European Central Bank’s target in June, strengthening arguments to press pause on a year-long campaign of interest-rate cuts. Consumer prices rose 2% from a year ago, up from May’s 1.9%, Eurostat said Tuesday. That matched the median estimate in a Bloomberg survey. Core inflation held steady at 2.3%, as expected, while the closely watched services gauge edged up to 3.3%. A stronger euro and lower energy costs are helping keep price pressures in check — as is lackluster expansion by the region’s 20-nation economy. June saw an unexpected slowdown in inflation in Germany, slight upticks in France and Spain and an unchanged reading in Italy. The data support declarations by ECB Chief Economist Philip Lane and his colleagues that the process of wresting back control of inflation is almost complete — even if President Donald Trump’s tariffs and war in the Middle East make for a precarious outlook.
China remains the world’s second largest economy and with an easing of the trade tensions between the US & China economists are paying close attention to the economic data coming out from that country these days for some signs of stabilization. This week it was reported that China’s home sales extended their slump in June, putting further strain on the economy and underscoring the impetus for fresh support measures. The value of new-home sales from the 100 largest property companies stood at 339 billion yuan ($47.3 billion), the latest preliminary data from China Real Estate Information Corp. on Monday showed. That represents a 23% fall from a year ago, according to Bloomberg calculations. June’s sales follows an 8.6% decline in May. On a monthly basis, however, the latest sales were up 14.7% from May, CRIC said. China’s housing downturn has dragged on for four years, as the effects of a stimulus blitz last September wear off. Premier Li Qiang this month pledged more action to revive the market, which analysts say is necessary to boost consumption and offset the threat to exports from US tariffs. “More support will be needed, but we don’t expect a big shift in approach” to housing, Duncan Wrigley, chief China economist with Pantheon Macroeconomics, wrote in a report last week. “China is resigned to a slow recovery.”
Company Events
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