The US job market had some encouraging news lately. Payrolls are rising, unemployment is falling, wages are ticking up again.
But something doesn’t add up. Look closer, and you’ll see warning signs: slowing private-sector hiring, falling work hours, stagnant labor force participation, and a collapse in immigration inflows.
The headline numbers suggest a strong economy. The reality is that the US job market is losing momentum in ways that aren’t obvious yet, but could soon hit growth, inflation, and policy choices all at once.
What the June jobs report misses
In June 2025, the US added 147,000 jobs, beating expectations by around 30,000.
Unemployment fell from 4.2% to 4.1%. So, where’s the issue?
Only half of the new jobs came from the private sector. The rest were in government, mostly local education.
Private payrolls grew by just 51,000, the slowest pace in eight months.
Hours worked per week declined to 34.2, a sign that companies are trimming labor without firing yet.
Source: Reuters
Wages rose only 0.2% month-over-month, which is weaker than earlier in the year.
The labor force participation rate stayed flat at 62.3%. That’s more than a full point below pre-COVID levels.
Meanwhile, 1.6 million Americans have been unemployed for over 27 weeks, which makes up a fourth of all unemployed workers.
Another 250,000 dropped out of the labour force entirely last month.
The jobs are there. The workers aren’t.
This is not a hot labor market. It’s a stretched one.
Is the US running out of workers?
One of the most overlooked trends in the job market today is the silent squeeze on labor supply.
It’s not just about retirements or discouraged workers. It’s about immigration.
According to Oxford Economics, net immigration into the US has collapsed to an annualized rate of 600,000 in early 2025, down from over 2 million just two years ago.
Source: Axios
The main reason is a sharp crackdown on unauthorized immigration and a slowdown in visa approvals.
The White House’s new enforcement push has stalled border crossings and ramped up deportations, particularly in cities like St. Louis, Buffalo, and Pittsburgh, where newcomers were propping up shrinking local economies.
These weren’t just any jobs. Immigrants made up a large share of workers in agriculture, construction, meatpacking, hospitality, and caregiving.
ICE raids have emptied restaurant kitchens and fruit markets. Farmers report crops going unpicked.
Builders in Los Angeles are behind schedule on post-fire reconstruction because labor has vanished. And these effects aren’t just local.
They ripple into national data.
The US isn’t just seeing fewer job seekers. It’s actively pushing them out.
A tight market without strength
This labor shortage creates a strange dynamic. Unemployment is low, but not because hiring is booming. It’s low because supply is vanishing.
Fewer people are entering the labor force. More are retiring. Immigration is drying up. And the people still in the market are working fewer hours.
This isn’t the kind of tightness that pushes up wages forever. If hours are cut, and sectors like manufacturing or retail aren’t hiring, wage growth won’t accelerate much more.
June’s wage growth of 3.7% year-over-year is indeed healthy, but it’s also slowing.
It’s not enough to sustain household spending, especially with inflation still hovering around 3.2% on core services.
And that’s where the risk lies. This isn’t a market overheating. It’s one that’s starting to hollow out.
The Fed might read the headline numbers and see no urgency to cut rates. But below the surface, the cracks are already forming.
If private-sector hiring stalls further, the unemployment rate could begin to rise even before inflation fully retreats.
What happens when policy and data diverge?
The danger now is a policy mismatch. If the Fed sticks to high rates based on what looks like strong employment data, it may be missing the fact that the labor market is softening underneath.
Participation is low. Work hours are falling. Wages are cooling. Private jobs are plateauing.
Additionally, demographics and immigration are shrinking the available labor pool.
This makes the economy more vulnerable to external shocks.
If something breaks, whether it’s in consumer spending, global trade, or business confidence, the cushion is thin.
What’s more, government hiring can’t continue to offset private weakness indefinitely.
State and local budgets are tight. Federal hiring is already down.
Once that support fades, monthly job gains could fall below replacement levels.
That creates an unusual risk: a slowdown with sticky inflation and weak growth. A 1970s-style problem, but for different reasons.
Three possible scenarios ahead
From here, there are a few paths the US job market could take.
One, is the soft-landing scenario. The Fed sees the data change, begins easing later this year, and the labor market stabilizes.
Wage growth firms up slightly, participation rebounds, and immigration policy normalizes.
Two, the stall. Hiring slows further, participation keeps falling, and core inflation lingers.
The Fed waits too long, and consumer spending begins to roll over. Growth slows meaningfully by the end of Q4.
Three, the structural bind. Immigration enforcement ramps up. Birth rates stay low. Retirements accelerate.
The labor supply shrinks permanently. That keeps wages elevated, growth uneven, and forces the Fed to operate in a low-growth, high-cost economy for years.
If current trends continue, the second and third scenarios look more likely.
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