US Labor Market Resilience: Healthcare and Leisure Lead Amid Tariffs and Federal Cuts

The U.S. labor market has defied expectations in Q2 2025, with healthcare and leisure sectors powering ahead despite trade tensions and federal austerity. While tariffs and government job cuts dominate headlines, these two sectors are proving their mettle as engines of job creation. For investors, this resilience presents a clear roadmap: focus on wage-sensitive equities and stay cautious on Fed policy timing.

Healthcare Sector: The Unsinkable Anchor

Healthcare added 62,000 jobs in May 2025, far outpacing its 12-month average of 44,000. Hospitals led the charge (+30,000), followed by ambulatory care (+29,000), while skilled nursing care grew by 6,000. This sector's growth is underpinned by inherent demand—aging populations, chronic care needs, and federal program expansions like New York's social assistance shifts.

Crucially, healthcare has insulated itself from tariff pressures. Unlike manufacturing, which shed 8,000 jobs due to higher input costs, healthcare's growth stems from domestic demand. Even federal cuts—such as the VA's planned 80,000 job reduction—have yet to disrupt private-sector hiring.

Leisure & Hospitality: Resilient Despite Headwinds

Leisure and hospitality added 48,000 jobs in May, tripling its 12-month average of 20,000. Food services (+30,000) were the primary driver, fueled by summer demand and pent-up consumer spending. While tariffs on apparel and electronics dampen broader retail activity, leisure's discretionary nature remains buoyant—so long as wage growth holds up.

Yet risks linger. Federal job cuts—down 22,000 in May—could indirectly crimp leisure's growth by reducing disposable income. The labor force participation rate fell to 62.4% in May, signaling a fragile labor market. Investors should monitor consumer sentiment: a University of Michigan survey showed no recovery from April's decline.

Federal Cuts: A Double-Edged Sword

The federal government has slashed 59,000 jobs since January . While healthcare and leisure remain insulated, the ripple effects are real. Each federal job lost could trigger 1.3 private-sector job losses via reduced spending. The IRS's plan to cut 45,000 jobs alone threatens tax-related small businesses in both sectors.

Fed Policy: No Rate Cuts on the Horizon—Yet

The Fed is boxed in by labor market strength. With unemployment at 4.2% and hourly wages rising 3.9% annually, policymakers will delay rate cuts to avoid overheating an already tight labor market.

Investment Playbook: Pivot to Wage-Sensitive Plays and Short-Term Bonds

1. Wage-Sensitive Equities: Healthcare and leisure firms benefit directly from rising wages. Look for companies with pricing power:
2. Healthcare: UnitedHealth (UNH), CVS Health (CVS)

3. Leisure: Starbucks (SBUX), Carnival Corp (CCL)

4. Short-Term Bonds: With the Fed likely to hold rates until 2026, short-term Treasuries (e.g., iShares 1-3 Year Treasury Bond ETF, SHY) offer safety against volatility.

5. Avoid Overexposure to Tariff-Exposed Sectors: Manufacturing and transportation stocks (e.g., Caterpillar (CAT)) remain vulnerable to global trade wars.

Conclusion

Healthcare and leisure are the unsung heroes of the 2025 labor market. Their resilience offers a tactical edge for investors, but success requires navigating two crosscurrents: federal austerity's spillover risks and the Fed's reluctance to cut rates. Stay sector-agnostic, wage-sensitive, and duration-aware. The economy may be slowing, but these sectors are proving there's still room to grow.

Data as of June 2025. Past performance does not guarantee future results.