How Thursday’s Jobs Report May Reflect Recent Labor Market Trends

Overview

Recent policy actions during the first six months of President Donald Trump’s second term include broad-based tariffs, deportations, federal spending cuts, and government workforce layoffs. These measures have the potential to influence the American economy and global dynamics.

While the full effects of these policies may take time to appear in economic data, some indirect impacts are already observable.

Recent Private Sector Job Data

In June, the US private sector experienced a net loss of jobs, according to payroll provider ADP. ADP’s monthly national employment report estimated a loss of 33,000 jobs.

Economists had expected a net gain of 115,000 jobs, based on FactSet data. The decline was attributed mainly to paused hiring plans.

“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” said Nela Richardson, chief economist for ADP. “Still, the slowdown in hiring has yet to disrupt pay growth.”

ADP’s figures do not always align with the official federal jobs report. For example, ADP’s March 2023 reading was later revised to a net loss of 53,000 jobs, while the official data showed a net gain of 48,000 private-sector jobs, largely due to increases in state and local government employment.

Nevertheless, ADP’s data is sometimes considered a proxy for overall hiring and wage growth. In March 2023, job growth was at its slowest monthly rate since December 2020.

Expectations for the Upcoming Jobs Report

The Department of Labor will release its latest employment data on Thursday at 8:30 a.m. ET. Economists expect the report to show an increase of 115,000 jobs in June, a decrease from the 139,000 initially estimated for May. The unemployment rate is expected to rise by 0.1 percentage point to 4.3%, the highest since October 2021.

Interpretation of ADP Data

Wednesday’s ADP report is the first negative reading since March 2023. According to Abiel Reinhart, economist at JPMorgan, the average absolute error between ADP and BLS numbers has been about 75,000 over the past year, partly due to initial BLS estimates being revised downward.

“The bigger story here beyond the month-to-month forecasting performance of ADP is that the series is clearly weakening, and this has been occurring quite steadily since the start of the year,” Reinhart wrote in a note to investors.

Some economists indicated that the ADP report did not change their expectations for Thursday’s official data. Pantheon Macroeconomics projected a net gain of 100,000 private payroll jobs, which they believe would be sufficient for the Federal Reserve to maintain its current policy stance. Pantheon also noted that ADP’s reported loss of 52,000 jobs in health care and education contrasts with the sector’s recent average monthly gains.

Bank of America economists observed that education and health care job growth tends to slow in the summer, and this year’s slowdown may be more pronounced due to a "low hiring-low firing" labor market and federal spending cuts.

ADP’s negative report influenced investor expectations for a July interest rate cut, with market expectations rising from just under 21% to 25%, according to CME Group’s FedWatch Tool.

Policy Changes and Labor Market Effects

Economic shifts typically take time to be reflected in labor market data, except in cases of major shocks.

Ron Hetrick, senior labor economist at Lightcast, stated that job growth is currently limited. He noted that expectations for one or two Federal Reserve rate cuts have not materialized, which may have affected hiring plans.

“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,” Hetrick said. “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 the full effects of tariffs, federal cuts, and immigration policies may take months or years to appear. She noted that continued labor market weakness could increase vulnerability to economic shocks.

Unemployment Rate Considerations

May’s jobs report indicated a cooling labor market, with employers adding an estimated 139,000 jobs and the unemployment rate steady at 4.2%.

Most job gains were in health care and leisure and hospitality. The labor participation rate declined, and the unemployment rate remained unchanged mainly because more workers left the labor force.

Ron Hetrick noted that the unemployment rate is influenced by changes in labor force size, not just job creation.

Foreign-born workers have accounted for about three-quarters of total labor force growth since February 2020, according to a June analysis by Wells Fargo economists. Recent efforts to reduce unauthorized immigration are contributing to a smaller labor force.

“Whereas immigration overstated the pace of labor market cooling last year, it could now paint an overly rosy picture of its health,” Wells Fargo economists wrote. “We expect the unemployment rate to peak at just 4.5% in the year ahead as weaker demand for workers coincides with weaker supply.”

Labor Market Indicators

The labor market is experiencing low turnover: hiring activity is near 10-year lows, and workers are less likely to quit, while employers are generally retaining staff.

Layoff activity has not increased recently, according to data from weekly jobless claims, layoff announcements, Worker Adjustment and Retraining Notification Act postings, and the Job Openings and Labor Turnover Survey (JOLTS).

Challenger, Gray & Christmas reported that US-based employers announced 47,999 job cuts in June, a 49% decrease from May and a 2% decrease from June of the previous year. Layoff announcements typically decrease in June and July.

Year to date, layoff announcements are at their highest rate since the pandemic and, before that, the Great Recession. Of the 744,308 announced cuts in the first half of 2025, 288,628 (nearly 40%) were attributed to mass layoffs from the Department of Government Efficiency initiative.

Not all announced layoffs result in immediate job losses; some federal workers have been rehired, and some actions are under legal review.

BLS data shows the federal government has lost 56,000 jobs since February. The federal government represents about 1.8% of total employment, and most public sector job gains have occurred at the state and local levels.

JOLTS data showed layoffs fell in May from 1.79 million to 1.6 million, remaining below pre-pandemic levels. The layoff rate is near record lows.

The latest jobless claims data will be released Thursday. First-time claims have increased gradually, while continuing claims are near four-year highs, indicating some difficulty in finding new employment.

“The early impacts of tariffs are just one drag on the job market,” wrote Daniel Zhao, economist for Glassdoor. “A bevy of other headwinds are accumulating including federal layoffs and funding cuts, slowing immigration and revocation of TPS work authorization, high interest rates, and more. While each alone would be too small to cause a recession, the combination of headwinds risks decelerating the job market just before the full weight of the tariff shock arrives.”