According to new employment totals released today by the Bureau of Labor Statistics, the US economy added an estimated 147,000 payroll jobs, month-over-month, in June. This was celebrated in the media and among financial commentators as a sign of great economic performance during the month. Except there’s a problem: fully half of these new jobs were government jobs. 

According to the same survey, 73,000 of the 147,000 new payroll jobs were in the government sector. That means only 74,000 of the total were in the private sector. June’s surge in government jobs was the largest month-to-month jump in government jobs in 16 months. Over the past five years, government jobs growth was higher in only seven other months. Meanwhile, private sector job growth in June was at a nine-month low. In many ways this represents a return to Biden-era job data which showed—especially in 2024—that government employment was an increasing share of employment overall. 

That is, government job growth helped to give the illusion of economic growth when, in reality, job growth was becoming more and more reliant on government transfers. During June, 49.7 percent of all job growth was government growth, making June the fifth worst month for the total proportion of government jobs over the past decade. 

Moreover, in spite of the Trump administration’s claims that manufacturing jobs would soon bloom throughout the American heartland, manufacturing jobs were negative, month over month, for the second month in a row. Over the past twelve months, manufacturing job growth has been either zero or negative for eight of the past twelve months. Only in two of those twelve months did manufacturing jobs grow by more than 1,000 jobs total. In terms of private-sector employment, this is a very weak jobs report, and essentially so given how every new worker hired in this report is working to pay for the job of equally numerous government employers hired in the same period. Anyone arguing that this is a sign of a robust economy is confused or is intentionally misleading the audience. We can also expect June’s total to be revised downward next month. After all, employment totals have been revised downward in every single month of 2025 so far. 

(We might also note that according to the Federal Reserve’s beige book summaries, half of the country is experiencing declining economic conditions.)

Unfortunately, a part of the “output” of these government jobs will also be factored into GDP, and these government jobs will be used to further create the illusion of robust economic growth. This may come as a surprise to those who wrongly thought that the so-called “Department of Government Efficiency” was going to lead to large cuts in government employment. Indeed, some MAGA outlets have attempted to create this impression by focusing on federal employment only. Yet, federal employees are only a portion of total government employment, and total government employment has surged in recent months. Yet, many of these state and local employees are de facto federal employees since they are funded by federal dollars. 

After all, state and local budgets are increasingly strained, and tax revenue at the state and local level fell in 2024. So, what is funding all this new government employment? Much of it is the federal government which continues to spend at historic levels with historically large deficits. As anyone who has worked in a state or local government knows, it is easy to find employees in those departments who are either partially or full funded by federal grants, even if they are technically state and local employees. 

Whatever DOGE’s contributions may have been, the Trump administration has made it clear it has no plans to actually cut federal spending. Thanks to Trump’s enormous budgets, the US federal government is still on track to rack up the largest deficit, by far, since 2021. The “Big Beautiful Bill” is a business-as-usual federal spending bill that will greatly add to mounting deficits and fuel more price inflation that results from the monetary inflation needed to help finance the growing federal debt. 

We have every reason to assume that so long as federal spending is rising, so will federal funding for state and local government jobs. The current increase in government employment should not be a surprise. The only surprise here, is how weak private-sector job growth was in June. 

In spite of this, however, the current jobs report will be interpreted as a sign of economic strength and markets will interpret the “strong” jobs report as evidence that the Federal Reserve will not cut the target policy interest rate in the short term. Put another way, even though half of the new jobs are government jobs, the report offers political cover to Jerome Powell and the FOMC to state there is no need for any additional cuts to the policy rate. Had the overall payrolls total been below expectations, that would have been politically helpful to those who continue to insist that the Federal Reserve should embrace even more easy money than it currently does. Donald Trump, for example, has repeatedly claimed that Powell is “too late” in cutting the policy rate. Yet, Powell could easily combine the current jobs report with the PCE inflation reading—which rose to 3.5 percent in June—to make the case for no action on interest rates. 

All in all, this is good news because Powell and the FOMC should most certainly not be trying to force down interest rates any more than they already have. Interest rates are absolutely not high by historical standards and there is absolutely no good reason for the Fed to seek to push them down even further. 

Ideally, of course, the FOMC and the Fed would stop manipulating interest rates altogether and would allow the market to set these rates. Given that this is unlikely, the most we can hope for is a Fed that is too paralyzed by fear of stagflation—which appears to be the current case—to take any action on the policy rate. 

Contrary to what Donald Trump and other inflationists think, what the economy needs now is not more easy money to “stimulate” the economy via more consumer spending and higher asset prices. Such things may be good politically for politicians like the president, but ordinary people desperately need deflation right now. The only sane monetary policy right now is to allow our many inflation-fueled financial bubbles to pop, to allow for price inflation, and to allow for the economy to build on a new foundation of actual market pricing rather than on incessant monetary inflation. After all, the current policy of non-stop bubble creation and easy money has given us a world of $30,000 “economy” cars and $900,000 starter homes. The average age of first-time home buyers is rising to multi-decade highs, and homes are the least affordable they’ve been in decades. Delinquencies on auto loans, credit cards, and student loans are at new cycle highs. And now private sector jobs are at some of the weakest levels we’ve seen in years. Business-as-usual isn’t working.