The soft underbelly of U.S. job growth

• Administration officials see this as justification for what Bessent calls a period of "detox" for the economy, and their willingness to risk pain to achieve it.
• Economists attribute disproportionate growth in health care and government jobs to the population's aging and to a catch-up effect from pandemic job losses. But some do see overreliance on these sectors as evidence of underlying weakness.

By the numbers: Over the past two years, employment by government (including federal, state and local), the health care industry, the social assistance sector, and private education has risen by 3.2 million jobs, a 6.7% jump.

• Within health care, major drivers of job growth were home health care (employment up 16.2%), nursing and residential care (9.6%), and hospitals (7.6%).
• All other sectors' employment rose by a combined 948,000 jobs, only a 0.9% rise. That's not quite what one would expect in a private-sector recession, as Bessent has put it (employment generally contracts in a recession), but it isn't great, either.

State of play: The Trump administration and Elon Musk's DOGE are looking to cut federal head count and pushing spending cuts that could affect the flow of government money to both state and local governments.

• Medicaid cuts contemplated in House Republicans' budget framework could reduce funding that ultimately is the revenue source for hospitals, nursing homes, and other health care providers.
• Moreover, some of the state and local government hiring was a catch-up effect after the 2021-2022 period when they struggled to attract workers amid a private-sector hiring explosion.
• All of that points to these sectors no longer creating a job growth tailwind. In a note this week, Goldman Sachs economists said they expect hiring in health care, education and government to slow to 15,000 jobs a month in the second half of the year, down from 100,000 now.

What they're saying: "In short, the sectoral composition of job growth does not suggest a rosy outlook for the rest of the year," wrote Preston Mui, senior economist at Employ America earlier this month.

• "Cyclical and rate-sensitive industries are stymied by a Fed that is reluctant to cut rates until they are certain inflation is going to continue lower, which will be difficult due to the day-to-day variation in tariff policy."
• "Meanwhile, job growth in acyclical industries is either slowing, outright negative, or likely to slow later this year."

Trump administration officials and some on Wall Street view these numbers as evidence the economy is overly dependent on low-productivity sectors not subject to market forces.

• "It may take time for private sector job growth to accelerate, for government workers to resettle, for broad-based corporate profits to rise, and for global trade to find a new equilibrium," wrote Bank of America strategist Jared Woodard in a recent note.
• "In our view, the likely productivity gains from a market-based economic reboot are greater than risks; and the risks from the unsustainable status quo of debt-financed, tepid, and narrow economic growth are severe," he added.

Yes, but: Health care employment has been steadily rising as a share of overall employment for decades, from about 7% in 1990 to 11% today.

• That reflects an aging population and the fact that other sectors have seen greater productivity gains.
• A manufacturing worker is far more productive now than they were 30 years ago, thanks to robotics, but a doctor still can see only one patient at a time. Education and many government functions have similar productivity dynamics.
• The steep rises in home health care and nursing home employment reflect the baby boom generation hitting its retirement years.

Reality check: Employ America's Mui notes that government employment is a smaller share of overall employment than it was in 2019.

• "It would be nice to see more employment growth in these cyclical sectors, but it's not going to come about by slashing public sector payrolls and teacher jobs," he tells Axios.
• The composition of job growth is "something that we monitor carefully," Fed chair Jerome Powell told us this week. But "from our standpoint, employment is employment."