U.S. Surprise: Private Sector Employment Shrinks for the First Time in Over a Year

There was a disproportionate impact on smaller companies. Firms with fewer than 20 employees accounted for a net loss of 29,000 jobs.

Written by: Ignacio Teson • Wednesday, July 2, 2025 • 1 min read

• Last updated: Wednesday, July 2, 2025

Quick overview

The U.S. labor market experienced an unexpected contraction in June, with a loss of 33,000 nonfarm jobs.
This decline marks the first monthly drop since March 2023, contrasting sharply with economists' expectations of a 98,000 job increase.
Job losses were primarily in professional and business services, education and health services, and small businesses, while goods-producing industries saw gains.
The report highlights the challenges faced by small and midsize businesses due to financial constraints and tariff impacts.

The U.S. labor market saw an unexpected contraction in June, according to the ADP employment report released Wednesday.

The private sector reportedly lost 33,000 nonfarm jobs, compared to a revised gain of just 29,000 in May. This marks the first monthly decline since March 2023, when 53,000 jobs were shed. Some analysts attribute the downturn to tariffs reintroduced by Donald Trump.

The figures sharply contrast with economists’ expectations surveyed by Bloomberg, who had forecast an increase of 98,000 jobs in June. The downward revision of May’s data—from 37,000 to 29,000 jobs created—further underscores a weakening labor trend.

ADP’s chief economist, Nela Richardson, noted: “While layoffs remain rare, hesitation around hiring and reluctance to replace departing workers led to job losses last month.”

Sector and Regional Breakdown

The losses were concentrated in professional and business services, which shed 56,000 jobs. Education and health services followed closely, with a net loss of 52,000 positions. The financial sector also contributed to the decline, cutting 14,000 jobs.

However, the contraction was partially offset by gains in goods-producing industries such as manufacturing and mining. These sectors collectively added 32,000 jobs in June, while service-related roles declined by a net 66,000.

Regionally, the Midwest and West recorded the steepest declines, losing 24,000 and 20,000 jobs, respectively. The Northeast saw a modest drop of 3,000, while the South was the only region to post a net gain, adding 13,000 jobs.

Small Businesses Hit the Hardest

Another key finding was the disproportionate impact on smaller companies. Firms with fewer than 20 employees accounted for a net loss of 29,000 jobs. In contrast, large businesses with over 500 employees posted the strongest growth, adding 30,000 positions.

The report reinforces concerns that small and midsize businesses—lacking the financial flexibility to absorb tariff-driven cost increases—are pulling back on hiring.

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ABOUT THE AUTHOR See More

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.