The U.S. job market showed significant weakness in July, with nonfarm payrolls increasing by a smaller-than-expected 73,000 jobs. This figure is considerably lower than the 80,000 to 100,000 jobs generally needed to keep pace with population growth, indicating a contracting job market. Even more concerning were the substantial downward revisions to job growth for previous months: May's initial 144,000 jobs were revised down to 19,000, and June's 147,000 were revised to 14,000. These revisions mean that 258,000 fewer jobs were added than initially reported, painting a picture of a "very soft" and stagnant labor market.
The unemployment rate also edged up one-tenth of a percentage point to 4.2% in July, from 4.1% in June. The share of long-term unemployed (out of work for over six months) has increased to nearly 25% from 21.6% since July 2024. The national hiring rate is at its lowest since 2014, excluding the early pandemic period. Despite low layoffs, this environment creates challenges for job seekers due to a lack of movement and stagnation in the labor market, with new jobs largely concentrated in healthcare and social assistance.
This surprisingly weak jobs data has fueled the debate within the Federal Reserve regarding interest rate policy. Markets are now pricing in a higher probability of a rate cut by the Fed, possibly starting at its September meeting. However, President Donald Trump's announcement of even larger tariffs on major trading partners complicates the situation, potentially increasing already high inflation as import taxes work their way through the economy. These tariffs, alongside factors like reduced immigration and cuts to federal spending, pose headwinds to the economy and could further pressure businesses.
Economists note that the average job growth over the past three months, including revisions, stands at a mere 35,000, a stark contrast to the 111,000 per month averaged in the first three months of 2025. This downturn suggests that the U.S. job market, previously thought resilient, may have hit a long-awaited wall. The Labor Department's report highlights a significant shift in the perceived health of the labor market, moving from one of apparent strength to one showing clear signs of weakness and stagnation.
