Public sector accounts for half of payroll

July 7, 2025

Payroll employment rose 147,000 in June, while payrolls in April and May were revised up. Public sector payrolls soared by 73,000, accounting for half of the gains during the month. A jump at the state and local level more than offset a 7,000 drop at the federal level. The moves up in public sector payrolls were largest in state payrolls and in local education. Federal payrolls are now down 69,000 since their peak for the year in January. The bulk of those losses reflect retirements amidst a hiring freeze. We could see another leg down as workers who took buyouts or were put on administrative leave come off payrolls later this summer.

Private sector payrolls rose by a tepid 73,000, the lowest pace since skipping a beat due to strikes and weather disasters in October 2024. Healthcare and social assistance and leisure and hospitality continued to drive overall gains.

Professional business services shed jobs, mostly among full-time ranks. Temporary workers accounted for only about a third of the losses.

Construction employment held up, while manufacturing and mining shed jobs. The largest losses were in big ticket durable goods; motor vehicles and parts accounted for about a third of those losses

Average hourly earnings rose a subdued 0.2% in June and slowed to a 3.7% year-over-year pace. That follows a downward revision to 3.8% in May and represents a narrowing of the premium workers are earning over the pace of inflation. A tick down in hours worked adds insult to injury, as weekly earnings cooled even more rapidly.

The only outlier on the wage front is the information sector, which includes the tech behemoths. Wages in that sector are skyrocketing, even as layoffs mount. The hunt for AI talent is driving those gains.

Separately, the household survey revealed that the unemployment rate edged down a tick to 4.2%. The drop was for all the wrong reasons. The supply of workers continued to fall. A continued drop in the ranks of foreign-born workers more than offset a rebound in native-born workers during the month.

The ranks of the long-term unemployed moved back up, while those quitting their job continued to edge down. The length of time to find a job is increasing, while new entrants are struggling to find new work.