Job Growth Momentum Hits a Wall
Sam Kuhn breaks down a softer June jobs report, as hiring came in below expectations and hospitality lost jobs even with the World Cup underway.
Photo credit: Donnie Rosie
After a series of several better-than-expected jobs reports over the spring months, job market growth in June hit a wall, adding a modest 57,000 jobs — concentrated in healthcare again. Downward revisions to the April and May reports subtracted 77,000 net jobs, dragging down three-month non-farm payroll growth to 111,000. That’s still a healthy figure, but a step below the recent pace of hiring.
On a positive note, the unemployment rate fell to 4.2% last month after steadily rising from 2024 to 2025. That trend has completely reversed at this point, with little sign of upward pressure on the joblessness rate.
Industry Trends
Healthcare and social assistance remained the labor market’s primary engine in June, adding 47,000 jobs, almost exactly in line with its long-run trend.
Outside of healthcare, professional and business services were the only major sources of job growth. That’s an encouraging sign for a sector that has struggled over the past few years amid higher interest rates and rapid advances in AI. Most other industries were little changed or posted modest declines.
The biggest surprise in June was the loss of 61,000 jobs in leisure and hospitality. The sector had posted solid gains in recent months, leading some analysts to attribute that strength to increased tourism surrounding the Club World Cup. With June’s decline, however, employment in the industry has barely increased since the start of the year.
I was skeptical of the World Cup explanation from the May jobs report. Looking at the unadjusted data, year-over-year employment growth in leisure and hospitality was largely unchanged from prior months, suggesting the tournament had little measurable impact on hiring.
Labor Force Trends
The other large negative surprise in this report was the sharp drop in the prime-age labor force participation rate, which declined by 0.6 percentage points in a single month. In fact, excluding the large drop during the peak of the pandemic, this was the single largest decline in the series during the 21st century.
Most of the decline was concentrated among the 25–34-year-old group, so the shift may just be noise, but it is a large enough drop to warrant further inspection.
This is a clear warning sign that, despite stronger job growth in recent months, there are underlying issues with the labor force that warrant careful watching from the Fed, as their attention has fully shifted to inflation (rightfully so).
Big picture: the labor market is no longer a meaningful source of inflationary pressure. Wage growth for non-managerial workers has continued to cool, slowing to 3.4% year over year, and the latest Fed communications make clear that inflation remains the primary concern.
At the same time, policymakers shouldn’t lose sight of cracks in the labor market. Unemployment remains low at 4.2%, and payroll growth is still running above the pace needed to keep up with population growth, but hiring is still concentrated in healthcare while labor force participation has weakened. The labor market remains healthy, but it no longer looks as broad-based as it did the past several months.
What does this mean for recruiters?
For those recruiting in healthcare, the pace of hiring remains strong. The industry that surprised us most last month was hospitality: everything from restaurants, bars to hotels. The surge of international fans for the World Cup was thought to be a driver of growth in the sector, but it now appears that wasn’t the case. Construction hiring is the second-largest source of job growth in the labor market — powered by the large AI data center buildup requiring HVAC and skilled trades labor.
Last but not least: here is a quick reminder that the Recruitonomics team is hosting a Substack live event on Aug. 7 to break down the next U.S. jobs report. You can register via this link.