Government job growth kills possibility of July rate cut

The irony of the 2025 labor market is that the most critical jobs report before the next Federal Reserve meeting — where President Trump is calling for significant interest rate cuts — has been bolstered by a sector that he and Elon Musk attempted to undermine: government labor. Without the massive boost from state government workers, the private payroll data would be showing a gain of only 74,000.

This report makes the July rate cut almost impossible unless jobless claims data starts to worsen in the upcoming weeks, since that data line improved today as well. So, President Trump is likely upset with the significant increase in government jobs reported today. Now Fed Chair Jerome Powell has more time to wait for the next rate cut, but I’m sure he is also noticing how soft the private payroll growth has been, especially with another month of jobs lost in manufacturing.

From BLS: Total nonfarm payroll employment increased by 147,000 in June, and the unemployment rate changed little at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in state government and health care. Federal government continued to lose jobs.

Jobs breakdown

While federal workers are losing jobs, there has been a significant increase in state hiring, particularly in education. This influx skewed the jobs report, which would have shown only 74,000 new jobs if government hiring were excluded.

Talk about the crazy irony of 2025! President Trump could have used a soft labor report to press Powell for rate cuts in July, but because there was a boom in government labor in this jobs report itself, it doesn’t scream aggressive rate cuts, it just shows a slowdown in private payroll.

Unemployment rate

The unemployment rate has decreased to approximately 4.1%, which the Federal Reserve considers a desirable level. However, as we have previously mentioned, the slowing growth of the labor force suggests that the unemployment rate could remain lower than many people anticipate — unless significant layoffs start to happen.

In the past, we experienced substantial labor force growth, which impacted job data and led to an increase in the unemployment rate; however, this is no longer the case in 2025. Immigration has drastically slowed, and each year, more baby boomers are leaving the workforce.

Residential labor

The primary labor sector I monitor with my economic cycle model is residential construction workers. If you had followed this data line since 2010, you would have had a far better success rate in predicting the economic cycle than 99.999% of those who have been consistently calling for a recession since then. However, this data line has shown a slight month-to-month decline, so we will continue to keep a close watch on it.

Jobless claims data

Another key metric for my economic cycle, especially since 2022, is the jobless claims data. While a lot people still like to make up stories about this data, it has been golden on calling recessions and for me the four-week moving average had to head toward 323,000 to start talking about a recession. As we sit here in 2025, the four-week moving average is at 241,500. Here is the chart of the initial claims data report and it’s been falling down the last few weeks.

Conclusion

The 10-year yield surged Thursday morning following the jobs report and is currently at a key level for the year, 4.35%. If the economy is performing well, a range of 4.35% to 4.70% for the 10-year yield is perfectly acceptable. If we start to see more rate cuts implemented, we could lower this range. However, those cuts have not yet materialized.

This jobs report has something for everyone. For me, it’s the same ongoing trend: although the labor market is becoming softer, it is not completely breaking. Notably, we saw losses in manufacturing and residential construction jobs, while government employment increased significantly.