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Privacy concerns are considered one of the main challenges in smart cities as sharing sensitive data brings threatening problems to people's lives. Federated learning has emerged as an effective technique to avoid privacy infringement as well as increase the utilization of the data. However, there is a scarcity in the amount of labeled data and an abundance of unlabeled data collected in smart cities, hence there is a need to use semi-supervised learning. We propose a semi-supervised federated learning method called FedSem that exploits unlabeled data. The algorithm is divided into two phases where the first phase trains a global model based on the labeled data. In the second phase, we use semi-supervised learning based on the pseudo labeling technique to improve the model. We conducted several experiments using traffic signs dataset to show that FedSem can improve accuracy up to 8% by utilizing the unlabeled data in the learning process.