Labor market cools as Trump tariffs weigh on business hiring
The U.S. labor market showed clear signs of strain in July as nonfarm payrolls rose by just 73,000, falling well short of Wall Street’s already modest forecast of 100,000. Although slightly higher than June’s dismal 14,000-job gain, the Bureau of Labor Statistics also revised prior months sharply downward, erasing a combined 258,000 positions from May and June.
The unemployment rate rose to 4.2%, matching expectations, but participation slipped to 62.2%, the lowest in over 18 months. The sluggish data triggered a market reaction, with stock futures and Treasury yields both falling after the release. Analysts say the soft report increases the likelihood that the Federal Reserve will cut interest rates at its next meeting in September.
Hiring concentrated in healthcare amid broader weakness
The few areas of strength in the July report were concentrated in the healthcare and social assistance sectors, which accounted for nearly all job growth. Healthcare alone added 55,000 positions, while social assistance added 18,000. Other sectors such as retail and finance posted modest gains of 16,000 and 15,000 jobs respectively.
Federal government employment declined by 12,000 jobs, continuing a trend since the Department of Government Efficiency began paring back staff earlier this year. Professional and business services also contracted, losing 14,000 positions. Long-term unemployment worsened as well, with the average duration rising to 24.1 weeks and nearly 1.82 million people out of work for over six months.
Tariffs and Fed in focus as economic risks rise
The timing of the labor slowdown coincides with President Donald Trump’s aggressive tariff policies, including steep levies on imports from China and other regions. Employers are reportedly holding off on hiring due to rising costs and ongoing trade uncertainty. The administration’s economic team acknowledged the challenges but reiterated confidence in tax and trade policies to stimulate recovery.
Federal Reserve officials, meanwhile, face increasing pressure from Trump to lower interest rates. The president again lashed out at Fed Chair Jerome Powell on Truth Social, demanding immediate action. Despite the criticism, the Fed kept rates steady this week, citing inflation risks and the need for more data before adjusting policy.
Cooling trend may push Fed toward rate cut
Markets reacted quickly to the weaker jobs data. Futures traders now see a 75.5% probability of a rate cut in September, up from 40% before the report. Average hourly earnings rose 0.3% for the month and 3.9% year over year, slightly above expectations, but not enough to offset concerns about weakening momentum.
Other labor indicators reinforced the slowdown. The broader underemployment rate, which includes discouraged workers and those working part-time for economic reasons, rose to 7.9%, the highest since March. The household survey also showed a net loss of 260,000 jobs.
While GDP rose 3% in the second quarter, much of that growth came from businesses front-loading imports ahead of tariff hikes. Consumer spending remained weak, raising questions about the sustainability of growth heading into the second half of the year.
