Our weekly podcast by Kevin Lings

US jobs grow but underlying trends raise some concerns

In this podcast, STANLIB’s Chief Economist, Kevin Lings, analyses latest US jobs data, which showed 147 000 jobs were created in May, above market expectations, while the unemployment rate fell to 4.1%. However, the private sector contributed about half the normal number of jobs and other surveys showed a similar softening trend in job creation. Kevin explores some of the factors behind this trend and what could happen in the longer term.

The focus areas during the week included

• The S&P 500 gained a further 1.7% in a holiday-shortened trading week to reach another record high. Year-to-date, the S&P 500 is up 6.8%, gaining a remarkable 21.7% since 21 April 2025. While the US labour market report for June 2025 (released on Thursday) was better than forecast, the expectation of an interest rate cut by the Federal Reserve (Fed) at the next Federal Open Market Committee (FOMC) meeting on 30 July fell from 25% to less than 5%.

• SA’s All-Share Index also had another good week, gaining 1.4%, which pushed the year-to-date performance to 15.6%, boosted by the Resource 10, which has gained 51.7% in the year to date. In contrast, the pan-European STOXX Europe 600 Index was down 0.5%, but is up a respectable 6.6% in the year to date.

• The US dollar has lost a substantial 12.1% against the euro this year and appears likely to remain under pressure in the next 3-6 months as the US economy slows and the Fed gets closer to another cut in interest rates (the market is pricing a 66% chance of the Fed cutting rates on 17 September). This should continue to benefit emerging market currencies, including the rand. They have gained 6.7% against the dollar in the year to date.

• In June 2025, the US unemployment rate improved to 4.1%. It has remained in an extremely narrow range of 4% to 4.2% in each of the past 13 months. The latest unemployment rate was below market expectations for the rate to rise to 4.3%. While the rate has increased from a low of 3.5%  in July 2023, an unemployment rate of 4.1% is low by historical standards. It is also important to highlight that the unemployment rate was boosted by a reduction in the size of the labour force – which (according to the detail in this month’s labour market report) was not necessarily due to less immigration. Nevertheless, the Trump administration’s efforts to control the US southern border more aggressively are resulting in less immigration, which is expected to have an impact on the labour market over time by reducing the number of people available to work. In other words, a fall in immigration will tend to lower the unemployment rate because fewer people will be added to the labour force each month. This must be balanced against the impact of the high import tariffs as well as the increasing role of AI in the business sector. Given the latest decline in the unemployment rate to 4.1%, we expect the Fed will continue to adopt a “wait and see” approach at the 30 July FOMC meeting, although a further interest rate cut is expected later in the year. Interestingly, just before the labour market report was released, the market was pricing a 25% chance of the Fed cutting interest rates by 25 bps at the next FOMC meeting on 30 July. This has now fallen to 4.7%.

• US non-farm employment rose by 147 000 jobs in June 2025, above market expectations for an increase of 106 000 (Bloomberg), while the previous two months’ employment data was revised up by a total of 16 000 jobs. Over the past six months, the US has added an average of 130 000 jobs a month, while over the past 12 months the average monthly increase in employment has been 151 000. These are solid gains under most circumstances – although job gains are expected to slow over the coming months as the negative impact of high import tariffs and the greater use of AI in the business sector start to take effect. US government employment grew by a massive 73 000 jobs in the month. This means that the private sector added only 74 000 jobs in June, which is well below market expectations for a gain of 100 000 and well below the six-month average of 142 000 jobs.

• US job openings rose to 7.8 million in May from 7.4 million in April, above market expectations for job openings to decline to 7.3 million. Over the past six months, the number of job openings has ranged between 7.2 million and 7.8 million. The number of people voluntarily leaving their jobs (quits) held steady at around 3.3 million, while layoffs and discharges were little changed. The latest market turnover data suggests that the US labour market remains relatively strong, with job openings exceeding unemployment of 7.02 million in June.

• On Thursday, the US Congress approved President Trump’s One Big Beautiful Bill Act (OBBBA). The OBBBA contains a very large package of tax and spending measures, which in aggregate will cost the US government around $3.3 trillion over the next decade, excluding interest costs (estimates provided by the Congressional Budget Office). In effect, the legislation will extend the expiring personal tax cut provisions that were passed during the first Trump administration in 2017, while adding additional tax reductions for households and businesses. These tax breaks will only partly be paid for by lower government spending and changes to green energy tax credits. Overall, the OBBBA should provide some stimulus to economic growth in 2026.

• US trade policy remains in focus with the expiration of the 90-day tariff pause still scheduled for 9 July. Reports suggest that talks between the US and European Union are progressing, as are negotiations between the US and Canada after Canada’s decision to withdraw its proposed digital services tax. The US also announced that it has reached an agreement with Vietnam to lower tariffs on Vietnamese exports to 20%. However, trade discussions with Japan have reportedly not advanced as smoothly, with Japanese policymakers hesitant to agree to a deal that maintains the current 25% US tariff on auto imports. Japan has reportedly continued to insist on the removal of all tariffs, particularly on its key auto and auto parts industries, while the US is said to be pushing for Japan to import US agricultural products. Over the weekend President Trump said that around 12 “letters” will be released on Monday.

• The US ADP employment report for June showed that private sector employment contracted by 33 000 jobs for the month, below expectations for a gain of 115 000 and the first negative monthly print since 2023. Looking into the drivers of the decline, most of the weakness was concentrated in the services side of the economy. Sectors such as education and health services, along with professional and business services, recorded the steepest payroll declines, while goods-producing industries posted modest job gains. According to Nela Richardson, Chief Economist at ADP, the decline in employment was driven by “a hesitancy to hire and a reluctance to replace departing workers”.

• In June 2025, the ISM manufacturing index contracted for the fourth consecutive month to 49, but was up from May’s reading of 48.5 and just below the market estimate of 49.1. According to Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, “activity slowed its rate of contraction, with improvements in inventories and production the biggest factors in the 0.5-percentage-point gain”. Meanwhile, the services sector returned to growth in June with the ISM services index increasing to 50.8 from 49.9 in May. The improvement was largely attributed to improvements in business activity and new orders. Importantly, the Prices Index eased by 1.2 index points from May but remained solidly in expansionary territory, indicating rising prices, with a reading of 67.5. This was the second-highest level since November 2022 and the seventh consecutive month above 60.

• According to the South African National Treasury’s statement of revenue, expenditure and borrowing, gross tax revenues amounted to R134.5 billion in May 2025, representing an annual increase of 8.5%. While this was lower than the 11.7% y/y growth recorded in April 2025, it is above the 7% annual growth required to achieve budgeted tax revenue for 2025/26. Both personal income tax and tax on corporate income were key to May’s growth in collections and they were supported by strong VAT collection.

• In May 2025, SA’s private sector credit extension rose by R28.8 billion (+0.6% m/m), offsetting the decline of R14.2 billion (-0.3% m/m) in April. On an annual basis, growth in private sector credit extension continued to accelerate, rising by 5% y/y from 4.6% y/y in April. This is the strongest growth in private sector credit since August 2024. The monthly breakdown of credit extension shows that corporate credit drove most of the increase, surging by R21.5 billion (+0.8% m/m). In contrast, consumer credit increased by a more modest R7.3 billion (+0.3% m/m).

• The SA inflation expectations report for Q2 2025 reflects a broad-based and significant decline among all three groups of respondents (business, trade unions and analysts). This is not surprising, given that domestic inflation has surprised to the downside in recent months. On average, the respondents expect headline consumer inflation will average 3.9% in 2025, then rise gradually to 4.3% in 2026 and 4.5% in 2027.

• A handful of economic indicators provided a mixed view of China’s economic performance. The official manufacturing Purchasing Managers’ Index (PMI) contracted for the third consecutive month in June, although the rate of decline slowed, with the index improving to 49.7 from 49.5 in May. The reading was marginally above market expectations (Bloomberg) for manufacturing PMI to rise to 49.6 points. More positively, the expansion of the non-manufacturing PMI quickened: it was 50.5 index points, up from 50.3 in May, as government is fast-tracking various spending initiatives. The market expected the services index would remain unchanged. Chinese authorities are expected to continue to roll-out fiscal and monetary policy stimulus measures, not only to provide a powerful signal to markets but also to stimulate domestic demand.

• Inflation in the Eurozone increased slightly to 2% in June 2025 from an eight-month low of 1.9% in May. Core inflation held steady at 2.3%. Within the CPI, services inflation rose to 3.3% from 3.2% in May. European Central Bank (ECB) President Christine Lagarde reacted to the inflation data at the central bank’s annual forum in Sintra, Portugal, by saying that the ECB’s target had been reached, dampening expectations for further interest rate cuts this year. Later, she said: “It will take time for us to gather sufficient data to be certain that the risks of above-target inflation have passed”. She added: “Our work is not done, and we need to remain vigilant”.

• In Japan, business confidence (as measured by the Bank of Japan’s Tankan Survey of Japan’s big manufacturers) unexpectedly improved in the three months to June to +13 from +12 in March, ahead of market expectations for a decline to +10. A positive number indicates that more firms are optimistic about recent business conditions than are pessimistic.