The US jobs numbers last week were chaotic, to say the least. The 0.1% drop in unemployment was yet another instance in which economists’ predictions were wrong. It is getting to be a habit, and the Donald Trump administration is reaping the political gains. The last few weeks have seen more and more articles attempting to explain why the predicted catastrophe after the Liberation Day tariffs announcement has not materialized. SIG’s view is that, now that the administration’s giant tax-and-spending bill has passed and members of Congress return to their constituencies for the summer recess, the real political work will concern jobs. So it is worth looking deeper into the new numbers.
Jobs in June increased by 147,000. However, the workforce itself shrank by more than that: The number of people characterized by the Bureau of Labor Statistics as “not in the labor force,” and therefore not counted as “unemployed,” grew by 490,000. The unemployment rate went down not just because jobs were added but also because the size of the workforce decreased.
In sectoral terms, the biggest job adds (73,000) were in government. The biggest source of those jobs was growth in the public education sector, which is mainly K-12 schools. Of the 47,000 state-government jobs gained, 40,000 were in education. Of the 33,000 jobs added in local government, 23,000 were in education. Federal government employment was down by 7,000 for June and has dropped by 69,000 since the beginning of the Trump administration, in line with the president’s commitment to shrink government.
The increase in state and local education jobs should not be a surprise. The 2008 recession hit those sectors very hard. They recovered at a much slower rate than the private sector. When Covid hit, their subsequent recovery, compared to that of the private sector, was even worse. Massive federal aid got schools through the pandemic but it was always going to dry up and eventually did. States, looking to the longer term, realized they needed to increase spending. Populous states like Texas, California, and New York have recently broken records for education spending. Much of it goes into teacher salaries, which have been increasing in response to a chronic teacher shortage. (Credentialing in many states has also become much more lenient to attract more teachers.) In short, the state and local public education sector was overdue for a boost, got it, and jobs have been created.
The other major sectors driving job gains in June were “health care and social assistance” (58,600) and “leisure and hospitality” (20,000). “Social assistance,” in the world of the Bureau of Labor Statistics, is not governmental but includes services like child care, vocational rehabilitation for the disabled, community food banks, and emergency services. The remaining major gains were in construction (15,000) and transportation/warehousing (7,500).
Overall, the private sector did not do as well as the public sector. Private payrolls were up by 74,000, the weakest growth since last October. An ADP Research study earlier in the week identified numerous indicators of weakening in the private labor market. Job losses in June were concentrated in mining and logging (down 2,000), wholesale trade (down 6,600), manufacturing (7,000), and professional and business services (7,000).
The problem, of course, is that the Trump administration’s goal has been to reduce government and favor the private sector, while the reality of the labor market so far is going in the opposite direction. Meanwhile, CEOs were spreading the word that AI would eliminate jobs on a grand scale. Ford’s Jim Farley thought that AI would “replace literally half of all white-collar workers in the U.S.” Of course, AI could also eliminate jobs in the public sector, including education. But the impetus for the current, very high levels of investment in AI is to increase productivity by making private-sector workers more efficient, not by hiring more of them. Overall, then, AI could well shift the balance of employment in the US economy further toward government.
It is possible that reducing taxes, as the new bill does, on upper-income groups could increase consumer demand, probably in the leisure category, and even free up capital for productive investment. It is also possible that a tariff program could result in increased investment in American manufacturing. However, neither of those results is going to be quick. In the meantime, Congress members will meet their constituencies as private-sector employment weakens and the federal government’s willingness or ability (given extraordinary debt levels) to solve problems, much less provide jobs, is weakening as well. Whether President Trump’s economics will work out in the end might not matter, because the end will be after the midterms, which in political terms could be too late.