The Summer Heat (in the Jobs Market) Isn’t a Statistical Illusion
The June jobs report came in hot, with payrolls rising by 147,000—easily beating Wall Street’s forecast of less than 110,000.
Cue the ritual backlash. Most of the gains, critics quickly noted, came from state and local government hiring. If you subtract that—and, for good measure, toss out health care and social assistance as “government-adjacent”—the private-sector gain dwindles to just 28,000. Not great.
While that looks like a sophisticated read of the jobs report, this quickly evaporates under the pressure of thought. It is true that sometimes a strong headline number for jobs is propped up by government hiring, revealing that the private sector is stumbling and business demand for workers is soft. But that is not what happened last month.
This wasn’t a month of artificial strength propped up by public jobs. It was a month where private employers got outbid. A month where native-born Americans re-entered the workforce in large numbers. And a month where demand didn’t vanish—it got crowded out.
When Demand Is High But Hiring Lags
To understand what’s happening, you have to look past the payroll print and into the plumbing. The JOLTS report, which tracks job openings as of the end of May, showed strong demand across multiple private sectors. Accommodation and food services posted a surge of 221,000 openings. Finance and insurance added another 91,000. This is not what a softening labor market looks like.
But when June’s payroll report landed, the hiring wasn’t there. Just 6,500 new jobs in food services. Three thousand in finance. It’s not that the jobs weren’t wanted. Employers were trying. They just couldn’t find the workers.
That’s not weakness. That’s a hiring market where demand exceeds available supply, and government is jumping the queue.
Now, if unemployment were high, we’d call this public-sector hiring a helpful cushion—a bit of Keynesian scaffolding to keep the labor market from buckling. But that’s not the world we’re living in.
The unemployment rate fell in June, dipping from 4.2 to 4.1 percent. That’s not what happens when the labor market is struggling. It’s what happens when workers are being absorbed faster than expected—even if not by the usual employers.
So, let’s be precise: when government dominates hiring during a downturn, it’s stimulus. When it dominates while unemployment is falling, it’s crowding out. That’s what happened in June. Government agencies, flush with tax revenue and unconcerned with margins, hired assertively. Private businesses, meanwhile, posted openings but came away short-staffed. The labor was there. The demand was there. But the price—the wage, the benefits, the onboarding timeline—was better in the public sector.
The Labor Force Isn’t Shrinking—It’s Rebalancing
Some economists argue that tightness in the labor market is really just a supply problem. The usual suspects are rolled out: fewer immigrants, rising deportations, declining participation. But the numbers tell a different story.
In June, the number of native-born Americans with jobs rose by 830,000. Foreign-born employment fell by 348,000. It was the third straight monthly decline for foreign-born workers. The labor force participation rate for native-born workers rose from 61.4 to 61.8 percent.
This isn’t a labor shortage. It’s a labor realignment. Fewer foreign-born workers. More Americans stepping up to take jobs. Employers, used to drawing from a bottomless global pool, are now facing a domestic labor market and are adjusting accordingly. American workers, seeing that employers are now turning to them to fill jobs, are stepping up.
Yes, this might mean paying more. It might mean hiring takes longer. But it also means that the long-debated question—will Americans do the jobs?—is being answered in real time. They will. They are.
Some Sectors Are Slowing—But That’s the Exception, Not the Rule
Of course, not every corner of the economy is bursting with demand. Retail trade saw job openings and payrolls both decline. Transportation and warehousing posted similar weakness. Professional and business services, a long-time driver of white-collar hiring, is no longer adding jobs.
In these sectors, something more than crowding out is likely at work. This looks like genuine softening—real economic cooling. Which raises a question for the Federal Reserve: with inflation easing, interest rates still elevated, and some private sectors clearly losing momentum, why hasn’t the Fed started cutting?
For months, the Fed warned that tariff-induced inflation might reaccelerate. It hasn’t. In fact, price pressures have moderated, even as the labor market rebalances. A smarter central bank would take the win—and cut.
A New Labor Market Regime
Strip away the noise and the June jobs report tells a clear story. The economy is still adding jobs. But it’s doing so in a new way. The public sector is hiring faster than the private sector can match. Native-born workers are re-entering the labor force while foreign-born employment declines. And the industries that want to hire—hospitality, finance, food service—are finding it harder to compete for labor.
This isn’t the post-COVID boom anymore. It’s a new labor market regime. Slower. Tighter. More grounded in domestic labor. It’s the shape of an economy adjusting to new constraints—and new priorities.
And if the Fed still thinks this looks like overheating, it might need to stop squinting and start reading. The June jobs report wasn’t a red flag for the economy—it was a red, white, and blue flag.
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