July 2025 US Labor Market Report: Public Sector Gains Offset Slowing Private Growth

July 2025

The U.S. labor market continued its steady, if subdued, expansion in June 2025, adding 147,000 nonfarm payroll jobs, according to the U.S. Bureau of Labor Statistics (BLS, July 5, 2025). While the pace of hiring remains consistent with recent months, a closer look at the data reveals that job creation is increasingly concentrated in public sector and healthcare-related roles, while private-sector growth is beginning to taper.

The unemployment rate dipped slightly to 4.1%, down from 4.2% in May, reflecting a marginal improvement in employment dynamics (BLS, July 5, 2025). However, the labor force participation rate declined to 62.3%, continuing a multi-month trend that has policymakers watching labor supply indicators closely.

Public Sector Leads Hiring Gains

Of the 147,000 new jobs added in June, nearly half were driven by state and local government hiring. The public education sector alone accounted for 40,000 jobs, contributing to a total gain of +73,000 in government employment overall (BLS, July 2025).

Healthcare and social assistance remained key drivers of private-sector growth, adding +39,000 and +19,000 jobs respectively. Within healthcare, hospitals (+16,000) and nursing and residential care facilities (+14,000) were the primary contributors.

In contrast, many cyclical industries such as construction, manufacturing, retail, and leisure and hospitality showed little to no net job gains for the month, indicating a slowing pace of hiring in consumer-facing and goods-producing sectors (Financial Times, July 6, 2025).

Wages Show Moderate Growth

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.08 to $36.30, a 0.2% monthly increase and a 3.7% increase over the past year (BLS, July 5, 2025). While this year-over-year growth remains above inflation levels, the pace has moderated compared to earlier in 2024 and early 2025.

The average workweek for all employees held steady at 34.2 hours, while production and nonsupervisory employees averaged 33.5 hours. These metrics suggest that while employers are maintaining current staffing levels, they are exercising caution in expanding hours or adding overtime (BLS, July 2025).

Labor Force Participation Softens

One of the more concerning signals in the June report is the continued decline in labor force participation, which fell to 62.3%, down 0.1 percentage point from the previous month. This trend, accompanied by a flat employment-to-population ratio of 59.7%, suggests that some workers are exiting the labor force entirely – either due to retirement, caregiving responsibilities, or discouragement (Axios Macro, July 5, 2025).

Despite the decline in participation, prime-age employment (ages 25–54) did improve slightly in June, indicating that core working-age Americans are still engaging with the job market, even as older workers and younger cohorts appear more hesitant to return (Federal Reserve Bank of St. Louis, July 2025).

Revisions Show Upward Momentum in Prior Months

The BLS also revised job numbers for the prior two months upward:

• April 2025 was revised from +139,000 to +150,000
• May 2025 was revised from +139,000 to +144,000

These adjustments add +16,000 jobs to the previously reported figures, signaling that underlying labor market momentum may be slightly stronger than initially believed (BLS, July 5, 2025).

Implications for Monetary Policy

The June data is unlikely to move the Federal Reserve toward an immediate change in interest rates. According to the Federal Reserve’s June meeting minutes, released earlier this month, committee members remain divided on the timeline for rate reductions. Some officials advocate for waiting until there is more unmistakable evidence of sustained disinflation and a softening labor market (Barron’s, July 3, 2025).

While job growth is no longer booming, persistent wage increases and sector-specific tightness, especially in healthcare, public education, and skilled trades, continue to place upward pressure on labor costs, a key concern for the Fed as it weighs its next move.

Outlook for the Second Half of 2025

Analysts generally agree that the U.S. labor market is entering a cooling phase, characterized by slower private-sector job growth and softer labor supply. Forecasts for the remainder of 2025 suggest monthly job gains could decline to between 75,000 and 100,000, especially if broader economic growth moderates (Investopedia, July 2025).

For job seekers, this environment presents a mixed picture:

• Opportunities remain strong in healthcare, social assistance, and government.
• Hiring may slow in sectors like retail, construction, and logistics.
• Wage growth is still favorable but may plateau as the market stabilizes.

For employers, recruiting challenges persist in critical skill areas, and retention strategies remain vital. Public sector agencies may find a competitive advantage in attracting displaced private-sector workers with stable benefits and rising wage scales.

Conclusion

The June 2025 jobs report underscores the resilience of the U.S. labor market but also marks a transition from rapid post-pandemic recovery to a more cautious, sector-specific expansion. With job growth increasingly reliant on public investment and healthcare infrastructure, the private sector faces headwinds that may shape hiring practices and economic sentiment in the months to come.

As labor force participation weakens and wage pressures persist, the Federal Reserve and policymakers will need to carefully navigate a complex employment landscape through the remainder of the year.