Nonfarm payroll growth was slower than expected in July and the unemployment rate ticked higher, raising potential trouble signs for the U.S. labor market as President Donald Trump ramps up tariffs.
Job growth totaled a seasonally adjusted 73,000 for the month, above the June total of 14,000 but below even the meager Dow Jones estimate for a gain of 100,000, the Bureau of Labor Statistics reported Friday. June and May totals were revised sharply lower, down by a combined 258,000 from previously announced levels.
At the same time, the unemployment rate rose to 4.2%, in line with the forecast.
The June total came down from the previously stated 147,000, while the May count fell to just 19,000, revised down by 125,000.
Stock market futures fell further after the news while Treasury yields also were sharply lower.
“This is a gamechanger jobs report,” said Heather Long, chief economist at Navy Federal Credit Union. “The labor market is deteriorating quickly.”
The weak report, including the dramatic revisions, could provide incentive for the Federal Reserve to lower interest rates when it next meets in September. Following the report, futures traders raised the odds of a cut at the meeting to 75.5%, up from 40% on Thursday, according to CME Group data.
“This is the slowdown that we’ve been expecting,” said Luke Tilley, chief economist at Wilmington Trust. “Firms are facing a very different cost structure. They need to adapt to a new cost structure, which means holding off on hiring.”
There were few signs of strength in the July jobs count, with gains coming primarily from health care, a sector that has continued to show strength in the post-Covid recovery. The group added 55,000 jobs, easily leading the way. Social assistance also contributed 18,000 jobs. The two sectors combined for some 94% of the job growth.
Retail added nearly 16,000 jobs and the financial sector was up 15,000.
However, federal government employment continued to decline, down 12,000 or the month and 84,000 since its January peak, before Elon Musk’s Department of Government Efficiency began paring down the jobs rolls. Professional and business services lost 14,000.
“In many ways, this is about slowing down. And now the test we have is really to figure out, to what extent is this slowdown likely to persist and get us into a more troublesome position,” Atlanta Fed President Raphael Bostic said on CNBC. “But we don’t know that now, and that’s something that I’ll be working on over the next two months” before the Fed’s September meeting.
Bostic does not vote this year on the rate-setting Federal Open Market Committee but does get to offer input at meetings. He previously has said he would support just one cut this year.
On wages, average hourly earnings increased 0.3%, meeting the estimate, though the yearly gain of 3.9% was slightly higher than expected.
The household survey, which is used to compile the unemployment rate, was even worse than the establishment survey of total payrolls gains. That showed a decline of 260,000 workers, with the participation rate edging down to 62.2%, the lowest since November 2022.
A more encompassing unemployment indicator that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.9%, its highest since March.
In addition, long-term unemployment heated up. Average weeks unemployed jumped to 24.1, the highest level since April 2022, while the level of those out of work for more than 27 weeks to 1.82 million, the most since December 2021 and about one-quarter of all the unemployed.
“Today’s report adds weight to signs of a slow but persistent cooling trend. While the labor market is not in crisis, hiring momentum continues to soften, and pressures are beginning to build,” said Ger Doyle, North America regional president at Manpower Group.
The report comes with questions rising about firms’ willingness to hire in the face of ongoing trade negotiations and escalating tariffs.
President Donald Trump has demanded the Fed lower interest rates aggressively. However, the central bank on Wednesday again voted to hold its key borrowing level in place, where it has been since December, despite blistering criticism from the president.
White House officials stressed shifts to the job picture that have come from uncertainty over the tariff negotiations as well as the administration’s crackdown on illegal border crossings.
“There’s certainly some … elements of this report that I don’t think we wanted, and I don’t think anybody really wanted, for the US economy,” Stephen Miran, chair of the Council of Economic Advisors, said during a CNBC interview. “But we do have very powerful policies in place, from the trade deals, from the tax bill, to make things pick up from here.”
Trump released another angry post Friday morning on Truth Social, appearing to call on the rate-setting Federal Open Market Committee to overrule Chair Jerome Powell.
“Jerome “Too Late” Powell, a stubborn MORON, must substantially lower interest rates, NOW. IF HE CONTINUES TO REFUSE, THE BOARD SHOULD ASSUME CONTROL, AND DO WHAT EVERYONE KNOWS HAS TO BE DONE!” Trump posted. Following the jobs report, Trump posted again, calling Powell “a disaster.”
Though there are concerns about where the labor market is headed, top-line economic numbers are still holding up.
Gross domestic product increased at a 3% annualized pace in the second quarter, considerably better than expected. However, that largely reflected the unwinding of a huge import buildup ahead of Trump’s April 2 “liberation day” tariff announcement. Underlying demand numbers in the Commerce Department report were mostly weak, while consumer spending increased from the first quarter was still tepid.
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