YOUR DAILY EDGE: 3 July 2025

The Jobs Market Is Starting to Fall Apart Even if Thursday’s jobs report comes in strong, a look behind the headline number tells a different story

Economists expect that the Labor Department’s monthly jobs report on Thursday will show that the economy added 110,000 jobs in June.

This year through May, the U.S. has added an average of 124,000 jobs a month. That is down from last year’s average of 168,000 a month—a reflection in part of how stop-start tariffs, government layoffs and an immigration crackdown could be catching up to the job market. More fundamentally, slow population growth and an aging workforce make it harder for the U.S. to add jobs like it did in the past.

The good news has been that layoff activity has remained relatively low, with employers hanging on to workers despite worries about the economy. And wage growth remains decent. But economic uncertainty has slowed the pace of hiring. (…)

Evidence is mounting that the headline jobs number could be overstated and that the pace of job growth has been significantly slower than what the monthly jobs employment report has shown.

Consider the regular revisions the Labor Department makes to its jobs report. Thursday’s release will focus on June data. But it will also update, or “revise,” the previously released jobs numbers for April and May.

For January through April, the Labor Department has so far revised down the monthly employment gains by an average of 55,000 jobs. March went from a headline of 228,000 jobs added when it was first announced, to 185,000 when it was first revised, to 120,000 when it was revised again.

Pantheon Macroeconomics economist Samuel Tombs reckons that is because a lot of employers don’t respond in time to this survey. Employers that do respond quickly are more likely to be large, well-capitalized and well-run.

The late responders are more likely to be small and to lack the deep pockets and know-how to more easily weather challenges such as high tariffs and the sharp slowdown in the supply of immigrant labor. As responses from those laggards come in, the jobs picture dims.

The Labor Department also twice a year releases data about “benchmark” revisions to a whole year’s worth of jobs figures. A preliminary estimate comes out in August, followed by a final revision in February.

Those revisions are based on the Labor Department’s Quarterly Census of Employment and Wages, or QCEW.

The QCEW for the fourth quarter was released in June and it showed the U.S. gained far fewer jobs from March to December than what the headline figures show. Adjusting the QCEW data for seasonal swings, Barclays economist Jonathan Millar calculates it shows the U.S. added 607,000 jobs over those nine months—or fewer than half the 1.4 million jobs initially reported in the monthly figures for that period. (…)

ADP, which processes paychecks for companies across the country, also releases a monthly report on U.S. jobs. And though it doesn’t cover government employers, it has been showing a sharp slowdown. 

Its data suggests that smaller companies, in particular, have ratcheted down hiring. On Wednesday, it reported that overall private-sector employment declined by 33,000 jobs in June from May. That was driven by a loss of 47,000 jobs at employers with fewer than 50 employees. So far in 2025, those small companies have added an average of only about 5,300 jobs a month—far fewer than last year’s average gain of nearly 40,000 jobs.

But if jobs growth is less than advertised, that might not be so much an indication of a weakening economy, but of a country that can no longer add jobs like it used to. The population of native-born Americans who are working age is barely growing, and the addition of new immigrants into the labor force has now been severely curtailed.

In a report Wednesday, economists Wendy Edelberg and Tara Watson of the Brookings Institution and Stan Veuger of the American Enterprise Institute concluded that net immigration to the U.S. this year will likely fall to zero or be negative, with more people leaving the country than entering. As a result, they think that the economy might only need to add as little as 10,000 to 40,000 jobs a month in the second half of 2025 to keep the unemployment rate, currently at 4.2%, steady.

That might not sound so bad: If there are fewer workers, fewer jobs are needed to prevent the ranks of the unemployed from swelling. The downside is that an economy that can’t add jobs like it used to can’t grow as fast, either.

About the ADP report:

Private industry payrolls fell 33,000 during June according to ADP. It was the first decline since March 2023, after a downwardly revised increase of 29,000 in May.

The ADP payroll series has been weaker than the BLS series during Q2. It was stronger in previous months, which explains why the average monthly increases over the last 12 months have been almost the same (124,200 vs. 122,000). (Ed Yardeni)

• Trump Floats a Mass Deportation ‘Temporary Pass’ The President says he wants a reprieve from migrant raids for farmers, hotels and some others.

If you’re confused about the Trump Administration’s mass deportation policy, join the club. First it was the full Stephen Miller, deporting every illegal in the land. Then there was going to be a reprieve for the agriculture and hospitality industries, then it was back to the full Miller. On Sunday the President said he now wants a “temporary pass” for some businesses. (…)

“You know, I’m on both sides of the thing. I’m the strongest immigration guy that there’s ever been, but I’m also the strongest farmer guy that there’s ever been, and that includes also hotels and, you know, places where people work, a certain group of people work.”

Mr. Trump says the White House is working on “some kind of a temporary pass, where people pay taxes, where the farmer can have a little control as opposed to you walk in and take everybody away.” (…)

A recent Dallas Fed analysis concluded:

• Unauthorized migration is down sharply mainly due to a decline in inflows.
• Surge migration increased job and output growth in recent years and reversal of migration will do the opposite

Light Vehicles Sales Decreased to 15.34 million SAAR in June

The BEA reported this morning that light vehicle sales were at 15.34 million in June on a seasonally adjusted annual rate basis (SAAR). This was down 1.7% from the sales rate in May, and up 2.3% from June 2024.

Note that sales in June 2024 were depressed by a cyberattack impacting dealers’ online systems. This makes the YoY comparison look better.

Inside America’s department stores, tariff-triggered price hikes are picking up

(…) Recent price increases in apparel, footwear, and bags across major U.S. department-store websites tracked by DataWeave indicate a turning point in May, when prices started their ascent.

DataWeave analyzes nearly 15,000 SKUs (stock keeping units), a scannable code retailers use to identify and track a product, and has been collecting that data from January to June for signs of price hikes in footwear, apparel, and bags.

“Footwear is now as much as 4% above January levels at some banners, while apparel is roughly half that pace,” said Karthik Bettadapura, co-founder & CEO of DataWeave. (…)

Private-label lines, many of which are made in China, refresh every few months, so retailers like Macy’s and Nordstrom feel higher landed costs sooner, according to Bettadapura. Footwear reacts fastest because it carries some of the steepest baseline duties and relies heavily on China for finished pairs. “Even a modest levy can ripple through quickly once fresh stock lands in distribution centers,” Bettadapura said. Apparel, with longer design cycles and a more diversified supply base, “is moving more gradually,” she added.

The SKU data supports findings from a recent survey conducted by the Footwear Distributors and Retailers of America, where 55% of respondents said they expect their average retail price to rise between 6%-10% in 2025 as a result of tariffs.

“With all back-to-school styles now facing tariffs of between 10-30 percent, higher prices should not be a surprise this summer,” said Stephen Lamar, CEO of the American Apparel and Footwear Association. “While each company makes their own decisions, these tariff costs are now being felt across the board,” he said.

In apparel, DSW topped the list in recent price increases, at 2%, followed by Macy’s (1.9%), and Nordstrom (1.8%), according to Dataweave. (…)

 

Trump said in a social post the tariff rate on Vietnamese goods will be 20%, and go to 40% for any goods that are finished in Vietnam but originate in other countries, such as China, in what is called “transshipment,” a supply chain strategy also known as “China Plus One” that has been used by companies to avoid tariffs.

Apparel companies that rely on Vietnam’s manufacturing capacity could face higher import costs under the new tariff rate. Nike, Lululemon, Patagonia, Puma, and H&M are among retail industry companies with manufacturing operations in Vietnam.

Vietnam is the second-largest supplier for footwear, apparel, and accessories sold into the U.S. market, according to the American Apparel and Footwear Association. (…)

The 20% tariff would be less than Trump’s initial threat of a 46% tariff on goods from Vietnam, but would be stacked on top of existing 10% most-favored nation tariffs paid by Vietnam, bringing the combined tariff to as high as 30% at a minimum, which could cause significant economic challenges for retailers. Meanwhile, the 40% transshipment tariff that has yet to be clearly defined by the administration. (…)

The Truflation Index on Goods is +2.1% YoY at the end of June, almost double its low March 2025 reading of +1.1%.

As I recently reported, prices of non-fuel imports rose 4.3% annualized in April-May after +0.9% annualized in the previous 12 months. They were up 1.7% YoY in May vs +0.5% one year ago. (Import prices exclude tariffs)

From June Manufacturing PMI: There was some notable upward pressure on input prices during June, with inflation accelerating to its highest in just under three years. Firms widely reported the inflationary impact of tariffs on prices, especially for metals like steel. In response, output charges were raised to the greatest degree since September 2022.

Canada PMI: Downturn in manufacturing sector gathers pace in June

The S&P Global Canada Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 45.6 in June. That was down from 46.1 in the previous month and indicative of another steep deterioration in operating conditions. It was the fifth successive survey period in which the PMI has posted below the critical 50.0 no-change mark.

Production volumes were cut to the steepest degree in over five years in June amid a sharp decline in new work. Tariffs were widely reported to have adversely impacted market demand, and overall sales declined for a fifth successive month. International sales, especially from the neighbouring US, were especially weak. Latest data showed that new export orders declined in June at one of the steepest rates in the survey history. (…)

Tariffs were widely reported to have also driven up input costs during June, dominating the anecdotal evidence provided by those manufacturers which experienced a rise in prices. Although the rate of inflation softened during June to a four-month low, it remained elevated compared to the survey trend. Manufacturers sought to pass on their higher input costs to clients via a rise in their own selling prices during June. Similarly, the rate of inflation remained marked, despite easing to a four-month low. (…)

Sure sounds like weak demand south of the border.

Eurozone growth edges higher as outlook improves

The HCOB Eurozone Services PMI Business Activity Index rose above the 50.0 mark in June, signalling a resumption in growth of services output in the single currency area. At 50.5, up from May’s 49.7, the latest figure signalled only a marginal rate of expansion that matched the subdued trend over the first half of 2025 and was weaker than the average for 2024 (51.5).

Overall growth was limited by a further decline in new business in June, although the rate of contraction was only fractional. The level of outstanding work fell further, albeit at the slowest rate since May 2024.

Higher activity was supported by a sustained rise in employment at service providers, extending the current sequence of job creation to almost four-and-a-half years. The rate of hiring growth held steady at a modest pace broadly in line with the trend for the past 12 months.

Companies added to workforces as expectations for the next 12 months continued to recover from April’s low. Confidence was the highest in 2025 so far, albeit still below the long-run series trend.

Input price inflation eased for the third time in four months to a seven-month low, but remained relatively high. Meanwhile charges were raised at the fastest rate in three months.

The seasonally adjusted HCOB Eurozone Composite PMI® Output Index rose to 50.6 in June, from 50.2 in May. Although the latest figure signalled only marginal overall growth, it was the highest in three months and above the 12-month average. Both the manufacturing and services sectors posted higher output.

Of the five euro area economies for which manufacturing and services data are available, Ireland topped the growth rankings for the fourth month running, even as the pace of expansion eased to the weakest since January. Spain retook second place from Italy with a faster expansion. Italy’s economy expanded for the fifth month running, albeit at the softest rate since March. Germany returned to growth with a fifth rise in output in 2025 so far, albeit at a weak pace. France remained the laggard with activity declining for the tenth month running, albeit marginally.

The overall rise in output was supported by the completion of outstanding work, which declined for the twenty-seventh consecutive month. The rate of decline in backlogs was the weakest for just over a year, however. New business fell for the thirteenth month running, but at the weakest rate over this period. Manufacturing new orders stabilised during June and services demand weakened only marginally. International* demand fell slightly despite a stable trend in manufacturing exports.

Eurozone companies hired additional staff for the fourth month running in June. The rate of employment growth remained weak, however, as manufacturers continued to cut workforces. Germany, Italy and Austria were the sources of lower manufacturing jobs, while French service providers also cut staff.

June survey data signalled a further recovery in business confidence from April’s 18-month low, to the strongest since July 2024. Expectations improved at both manufacturers and service providers. The overall level of optimism remained weaker than the long-run series trend, however.

Input price inflation was unchanged from May’s six-month low, and below the long-run average. This reflected a further decline in manufacturers’ input costs, as service providers continued to register relatively sharp increases. Similarly, manufacturing output prices fell whereas service providers raised their charges at a rate that remained above the long-run average.

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The service sector has been more or less stagnant since April. (…) unlike in the past, companies have refrained from cutting jobs, even in weak quarters. As a result, private consumption, the key growth driver for the service sector, has not slumped massively since 2021. In June, companies even hired more people than in May, and a recession may therefore be avoided in the foreseeable future.

“The question is whether a robust recovery is even possible after the sluggishness in the service sector in recent years. This will probably be difficult for the eurozone as a whole, but in Germany, the largest eurozone economy, it is certainly a probable outcome, given the extraordinary stimulus package that the new government is currently putting in place. Even if civil engineering and the defence sector will benefit most from this, the fiscal stimulus is also likely to spread to the service sector, especially in the coming year. In any case, expectations for the next 12 months have improved for the eurozone, although the figure remains below the long-term average.

“The European Central Bank is unlikely to be entirely happy that sales prices in the services sector rose more strongly in June and that input prices are also rising sharply. In view of other factors such as the strong euro and the deflationary effect of US tariffs on the eurozone, the significance of services inflation, which looked more critical a year ago, is receding somewhat into the background.”

China Services PMI: Softest rise in services activity in nine months

The headline Caixin China General Services Business Activity Index posted 50.6 in June, down from 51.1 in May. This marked the thirtieth successive month in which the index has registered above the crucial 50.0 no-change mark to indicate an expansion of services activity in China. The pace of growth was the softest since last September, however.

Central to the softer rise in services activity was a moderation in the rate of new business growth. While marketing efforts and the launch of new products supported higher overall sales, the rate of expansion eased amid subdued global conditions. New export business declined for a second successive month and at the quickest pace since December 2022.

Staffing levels were lowered in June, which survey respondent soften linked to a slowdown in new order growth and concerns over costs. The fall in employment was only marginal, but nevertheless contributed to a build-up of outstanding work in June. The level of outstanding business increased at the most pronounced pace in a year.

Turning to prices, average input costs remained on an upward trend in June. Comments from panellists often pointed to higher raw material and fuel costs as the main drivers of inflation. The rate of increase eased to a three-month low and was marginal,however. Services companies opted to continue absorbing cost increases in June and cut their output charges for a fifth successive month. Anecdotal evidence suggested that intense market competition had underpinned the latest reduction in selling prices, which were cut at the sharpest pace since April 2022.

Overall sentiment in the service sector remained positive at the end of the second quarter. Service providers were hopeful that better economic conditions and business expansion plans will help to spur sales and push up activity levels over the next 12 months. The level of confidence rose for a second successive month in June, but remained well below the long-run average.

China domestic demand remains subdued.

Britain’s Welfare Reversal Hammers U.K. Bonds as Chancellor Tears Up Investors fret more taxes or borrowing are likely after the U.K. government abandoned a plan to cut welfare spending

Investors sold off British government bonds and the pound fell sharply on Wednesday after the Labour government abandoned plans to cut ballooning welfare costs and the country’s Chancellor of the Exchequer was seen crying in parliament.

The selloff came hours after the government of Prime Minister Keir Starmer shelved a plan to cut disability payments following a rebellion by Labour’s own lawmakers. The U-turn raised the prospect of the government hiking taxes or issuing more debt to fund its welfare system. It also casts doubt over the future of Rachel Reeves, the U.K. chancellor, who took the job just over a year ago promising a return to economic stability in Britain by sticking to strict spending rules. (…)

The government’s climbdown points to a broader truth for governments across Western Europe, where weak economic growth means countries are struggling to raise enough revenue to pay for rising costs from an aging population. With voters largely wary of spending cuts, that leaves higher taxes, which could hurt growth further, as the most likely outcome.

Britain is already on course to register the highest tax burden since World War II thanks to big spending during the pandemic and paying out for energy subsidies after Russia’s invasion of Ukraine. Meanwhile its growth prospects remain meager. The country’s Office for Budget Responsibility says growth could be 1% in 2025 and economists say even this looks optimistic.

The Labour Party was elected last July with a historically large majority and a mandate to fix the nation’s public finances. (…)

Reeves has repeatedly stated that she will stick by strict fiscal rules, which stipulate that day to day spending is matched by tax revenue and that government debt as a percentage of the economy will fall. In March, the cuts to disability payments were hurriedly introduced by the Treasury just before a review of departmental spending was scored by a budget watchdog.

The number of people claiming disability or incapacity benefits has risen from 2.8 million in 2019 to 4 million in 2025. Currently around 1 in 10 working age people in Britain are on such benefits, according to the Institute for Fiscal Studies, a U.K. think tank. The government aimed to tighten eligibility to bring these numbers down, get more people back into work and save £5 billion.

But when the government released guidance stating that the cuts to disability payments would push 150,000 people into poverty, its lawmakers rebelled.