While markets are still expecting the first cut in September, July is in the running after jobs decrease

An unexpected decline in private-sector employment in June could prompt the Federal Reserve to reconsider rate cuts in July. While the odds are still higher for the next cut to be in September, a weak jobs report led markets betting on rate cuts to increase the odds of a July drop.
Private-sector employment in the U.S. unexpectedly declined in June, shedding 33,000 jobs, marking the first monthly decline since March 2023. The data, released Wednesday by ADP Research in collaboration with the Stanford Digital Economy Lab, revealed a surprising weakness in the labor market as businesses adopted a more cautious approach to hiring amid economic uncertainty.
After the report was released, the odds of a July rate cut increased for the second consecutive day. CME FedWatch, which tracks the likelihood of Fed rate movement, now predicts a nearly 25% chance of a cut in July. The odds went up on Tuesday as well when Jerome Powell didn’t rule out rate cuts beginning later this month.
The decline sharply diverged from economists’ expectations. Analysts surveyed by Dow Jones had predicted a gain of 100,000 jobs, while none of the economists polled by Bloomberg had anticipated a loss. The June figure follows a downwardly revised gain of 29,000 jobs in May.
“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” said Dr. Nela Richardson, chief economist at ADP.
Service industries see deep cuts
The losses were primarily concentrated in service-related industries. Professional and business services saw a 56,000 decrease in payrolls, while education and health services dropped by 52,000. Financial activities also contributed to the decline, shedding 14,000 jobs in June.
In contrast, goods-producing sectors helped cushion the overall losses. Manufacturing added 15,000 jobs, construction gained 9,000, and natural resources and mining increased by 8,000 positions. Overall, goods-producing roles expanded by 32,000 jobs last month.
Jerome Powell, Chairman of the Federal Reserve, stated the Fed held off on rate cuts due to potential impacts from US tariffs. He indicated that without tariffs, cuts would likely have occurred already, but the Fed is waiting to see effects. https://t.co/YuPFAgLUYK
— Mortgage Professional America Magazine (@MPAMagazineUS) July 1, 2025
Regional differences were also notable. The Midwest and West registered the largest cuts, losing 24,000 and 20,000 jobs, respectively. The Northeast declined slightly, while the South stood out as the only region to add jobs, posting a net gain of 13,000.
Small businesses hit hardest
Smaller businesses bore the brunt of the contraction. Companies with fewer than 20 employees lost 29,000 jobs, and those with 20 to 49 employees shed 18,000 positions. Meanwhile, large firms with 500 or more workers expanded their payrolls by 30,000 jobs, highlighting a clear divide in labor trends by company size.
Despite the decline in employment, wage growth remained resilient. Workers who stayed in their roles saw a 4.4% increase in pay over the past year, while those who switched jobs experienced a slightly larger 6.8% gain. Although both figures represented slight declines from May, they suggest that the cooling in hiring has not yet translated into major pay stagnation.
The ADP report, which draws on anonymized payroll data covering over 25 million private-sector employees, is closely watched as an early indicator of labor market trends. However, its results do not always line up with official government data. The Bureau of Labor Statistics’ June employment report, scheduled for Thursday, is expected to show an increase of 110,000 jobs and a slight increase in the unemployment rate to 4.3%.
Broader indicators are painting a mixed picture of the labor market’s strength. Recent data from The Conference Board indicated that fewer consumers believe jobs are plentiful, hitting the lowest level in more than four years. Meanwhile, hiring plans tracked by placement firm Challenger, Gray & Christmas were among the weakest since 2004.
Businesses are also feeling the strain from ongoing trade policy tensions and higher costs, which have prompted many to tighten their hiring plans. While Federal Reserve Chair Jerome Powell has continued to describe the job market as solid, these latest figures may raise concerns about a more pronounced slowdown heading into the second half of the year.
The Trump administration has been urging Powell and the Federal Reserve to cut rates, with the president sending a handwritten note to Powell this week criticizing the Fed’s inaction.
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