The first six months of President Donald Trump’s second term have been characterized by significant policy changes, including broad-based tariffs, increased deportations, and substantial federal spending cuts. These actions have the potential to reshape the American economy as well as the global economic landscape. While the full effects of these policies may take time to manifest in the economic landscape, the initial impacts are already evident.
In June, the U.S. private sector experienced a notable setback, losing approximately 33,000 jobs, according to the latest data from payroll provider ADP. This marked the first negative job growth month in over two years. Economists had anticipated a net gain of around 115,000 jobs, making the actual loss a significant deviation from expectations. The primary factors driving these job losses were stalled hiring plans, as noted by Nela Richardson, chief economist at ADP. She stated, “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month.”
It is important to note that ADP's figures do not always align with the official federal jobs report. For instance, ADP's report from March 2023 was eventually revised to show a net loss of 53,000 jobs, while the official data indicated a net gain of 48,000 jobs. Despite these discrepancies, ADP's reports are often used as a proxy for overall hiring and wage growth activity. The March 2023 report indicated the slowest monthly gain since December 2020, raising concerns about the direction of the labor market.
The upcoming employment report from the Department of Labor, scheduled for release Thursday at 8:30 a.m. ET, is expected to reveal that 115,000 jobs were added in June. This represents a decline from the 139,000 jobs initially estimated for May. Additionally, economists predict that the unemployment rate may rise by 0.1 percentage point to 4.3%, marking the highest jobless rate since October 2021.
Wednesday's ADP report reflects the first negative reading since March 2023, highlighting a concerning trend in job growth. Abiel Reinhart, economist at JPMorgan, noted that the average absolute error between ADP and the Bureau of Labor Statistics (BLS) numbers has been about 75,000 over the past year, attributing the discrepancies to initial overestimations by the BLS.
Despite the negative outlook from ADP, some economists remain optimistic. Pantheon Macroeconomics anticipates a net gain of 100,000 private payroll jobs, which may still be sufficient for the Federal Reserve to keep interest rates on hold later this month. They pointed out that the ADP number is surprising, particularly given the losses in the health care and education sectors, which have typically shown stronger job growth.
Experts suggest that the labor market is becoming increasingly anemic. Ron Hetrick, a senior labor economist at Lightcast, remarked that while there is uncertainty due to tariffs and immigration policies, it doesn’t necessarily indicate a weak economy but rather a hesitance in hiring due to prevailing uncertainties. This scenario poses risks for the labor market, which may not be robust enough to withstand future economic shocks, as highlighted by Elizabeth Renter, a senior economist at NerdWallet.
The unemployment rate is a pivotal indicator of economic health; however, it is becoming increasingly complex due to changes in immigration policies and labor force dynamics. Analysts have observed that foreign-born workers have accounted for a significant portion of labor force growth since February 2020. Efforts to limit unauthorized immigration may exacerbate a shrinking labor force, leading to a distorted picture of the job market.
While the unemployment rate is expected to rise to around 4.5% in the coming year, this increase is seen as a consequence of weaker demand and supply dynamics rather than a sign of economic collapse.
The current labor market is experiencing low churn, with hiring activity at near ten-year lows. Most employers are retaining their existing workforce, and recent data from Challenger, Gray & Christmas indicates a significant decline in layoff announcements. In June, employers announced nearly 48,000 job cuts, a 49% decrease from May and a 2% drop from June of the previous year.
Despite these positive signs, the overall job market remains vulnerable due to multiple headwinds, including federal layoffs, high interest rates, and uncertainties surrounding tariffs. Daniel Zhao, an economist for Glassdoor, emphasized that while no single factor may lead to a recession, their cumulative effect risks slowing the job market as we approach the full impact of new tariffs.
