The U.S. private sector experienced an unexpected contraction in June 2025, shedding 33,000 jobs according to the ADP National Employment Report released on July 2, 2025. This marks the first job loss since March 2023, signaling a potential cooling in the labor market amid ongoing economic uncertainties.
ADP, a payroll processing firm, reported that the private sector's job losses came as a surprise to economists who had forecasted an increase of around 100,000 jobs for June. The May job growth figure was also revised downward from 37,000 to just 29,000, further suggesting a slowdown in hiring momentum. Despite these setbacks, annual pay growth held steady, with job-stayers seeing a 4.4% increase year-over-year and job-changers experiencing a 6.8% rise, though both figures showed slight declines from the previous month.
Dr. Nela Richardson, ADP's chief economist, explained that the job losses were primarily due to "a hesitancy to hire and a reluctance to replace departing workers," even as layoffs remained rare. She emphasized that while hiring has slowed, pay growth had not yet been disrupted, indicating that employers are cautious but not yet cutting wages.
The job losses were concentrated in service sectors, particularly professional and business services, which declined by 56,000 jobs, and education and health services, which fell by 52,000. Financial activities also saw a decrease of 14,000 jobs. In contrast, goods-producing sectors like manufacturing, mining, and construction added a combined 32,000 jobs, with manufacturing alone gaining 15,000 positions. Leisure and hospitality also reported gains, adding 32,000 jobs, reflecting some resilience in consumer-facing industries.
Regionally, the Midwest and Western United States experienced the strongest contractions, with payrolls declining by 24,000 and 20,000 respectively. The Northeast saw a smaller decrease of 3,000 jobs, while the South was the only region to record net growth, adding 13,000 jobs. Within establishment sizes, smaller firms with fewer than 20 employees lost 29,000 jobs, while large firms with over 500 employees added 30,000 jobs, highlighting a divergence in hiring trends based on company size.
Despite the ADP report's detailed insights, economists and market analysts urge caution in interpreting its implications. Historically, ADP’s monthly employment data has shown a spotty track record in predicting the official government nonfarm payroll figures, which are released by the Bureau of Labor Statistics (BLS). For instance, the ADP report for May 2025 suggested weak job growth, but the official numbers later showed a healthier job market.
The government’s official nonfarm payroll report for June 2025 was scheduled for release on July 3, one day early due to the Independence Day holiday, with economists expecting a more optimistic addition of around 110,000 jobs and a slight rise in the unemployment rate to 4.3% from 4.2%. This would mark the highest jobless rate since October 2021 but still reflect a relatively stable labor market.
Some economists, like those at Pantheon Macroeconomics, expressed skepticism about the ADP figures, particularly noting that the reported loss of 52,000 jobs in health care and education contradicts the six-month average gain of 77,000 jobs in that sector. They maintain their forecast for a 100,000 job increase, suggesting that the ADP number "defies credulity." However, others acknowledge that weaker growth in education and health care is plausible due to seasonal trends and federal spending cuts.
Market reactions to the ADP report included a modest increase in expectations for a Federal Reserve interest rate cut in July, rising to 25% from just under 21% the day before, according to the CME Group’s FedWatch Tool. Nevertheless, Federal Reserve Chair Jerome Powell emphasized a cautious approach, stating the Fed would "wait and learn more" about the impact of tariffs on inflation before adjusting rates.
The broader economic context adds complexity to the labor market’s trajectory. The first half of President Donald Trump’s second term has been marked by sweeping policy actions, including tariffs, deportations, federal spending cuts, and government workforce layoffs. These measures have introduced uncertainty that appears to be restraining hiring plans, as Ron Hetrick, senior labor economist at Lightcast, explained: "There’s a difference between true economic weakness — which is no one’s buying my stuff, and I’m going to go out of business — and a lack of hiring because of uncertainty. I don’t believe we have a weak labor market because the economy is poor. I think we have a weak labor market because companies don’t feel good."
Elizabeth Renter, senior economist at NerdWallet, cautioned that if this uncertainty persists, it could make the labor market more vulnerable to shocks, stating, "It will be months or even years before we see the full effects of tariffs, federal cuts and immigration policies in the labor market. But if we continue to see increasing weakness, these things may have a more resounding impact, as the labor market won’t be robust enough to weather a storm."
Labor market indicators reveal a low churn environment: hiring activity is near 10-year lows, and workers are hesitant to quit their jobs. Layoff activity has not accelerated; in fact, a report from Challenger, Gray & Christmas showed that U.S.-based employers announced 47,999 job cuts in June 2025—a 49% decline from May and a 2% decrease from June 2024. However, year-to-date layoff announcements are at their highest rate since the pandemic and before the Great Recession. Nearly 40% of announced cuts in the first half of 2025 stemmed from mass layoffs initiated by the Department of Government Efficiency initiative.
Meanwhile, the federal government has shed 56,000 jobs from February to May 2025, though it remains a small portion of overall employment. The government’s Job Openings and Labor Turnover Survey (JOLTS) data reflected a decline in hires for May 2025 and an increase in job openings per unemployed person, suggesting a complex dynamic between labor demand and supply.
Overall, the labor market appears to be in a state of cautious adjustment rather than collapse. The ADP report’s indication of job losses in June is a warning sign of slowing growth but not necessarily a harbinger of recession. As the official government data arrives and policymakers continue to navigate economic uncertainties, the coming months will be critical in determining whether the U.S. labor market can maintain its resilience or face deeper challenges ahead.
