We expect the U.S. employment report for July, which will be released on Friday, to show an increase of 75,000 jobs.
We also anticipate that the May and June reports will be revised upward to capture the hiring that went on around the World Cup.
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The unemployment rate will remain unchanged at 4.2%, we expect, with average hourly earnings increasing by 0.3% on the month and by 3.5% from one year ago.
While the impetus for the labor market’s strength is an economy growing above potential at an average yearly rate of 3.4% for the past five years, a look behind the numbers suggests there is more nuance to the consistently low unemployment rate.
Jobs in health care and social assistance
Since December 2024, the increase in jobs has come mainly from the service sector.
Specifically, it is the 594,000 jobs that have been created in health care and the 411,000 new positions in social assistance.
It’s no mystery what is driving this rise in health care: There are now 27 million more Americans age 65 and older than there were in 2005.
In 2005, that group comprised 12% of the population; by 2025, it was 18%.
The baby boom generation began to age around 20 years ago, with the oldest of that group now pushing 80.
As they have aged, they have brought greater demand for medical services and staffing.
At the same time, the economy has been transformed, to one dominated more by services and less by the production of goods. Consider these trends:
The private sector is more important…
The most important role for the U.S. on the world stage is its success as an open, market-based economy.
In the modern era, if 1965 is used as the starting point, employment in the private sector has grown at an average annual pace of 1.7% per year.
Government jobs have not kept pace, increasing at a steady 1.4% yearly rate, which suggests more efficiency among government occupations and a declining ratio of government-to-private employment,
… as government positions have fallen
Since December 2024, workers on nonfarm payrolls have increased by 668,000, with jobs in the private sector increasing by 828,000 and government jobs decreasing by 158,000.
With the private sector, it’s all about services …
Within the private sector and since December 2024, the service sector has added 881,000 jobs, while the goods-producing sector has lost 55,000 jobs.
…while construction is also a bright spot
Since December 2024, manufacturing jobs have lost 95,000 jobs while construction has added 55,000 positions. We attribute the increase in construction jobs to the buildout of AI facilities and the loss of manufacturing employment to Trump-era trade policies.
The takeaway
The health of the labor market has become a function of providers of health and social assistance. That is not to diminish the recent importance of AI buildout, but rather it is a simple fact of the demand for workers in the most personal of services.
