The U.S. economy added jobs in July – though it was at a slower pace than in the last several months as uncertainty over economic conditions mounted.
The Labor Department on Friday reported that employers added 73,000 jobs in July, a figure that was cooler than the estimate of economists polled by LSEG.
The unemployment rate ticked slightly higher to 4.2%, in line with LSEG economists’ estimate.
Job gains in the prior two months were both revised, with job creation in May revised downward by 125,000 from a gain of 144,000 to 19,000; and June job gains were revised down by 133,000 from a gain of 147,000 to 14,000. Taken together, employment in May and June was 258,000 lower than previously reported, which the Bureau of Labor Statistics noted were “larger than normal” revisions.
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Private sector payrolls rose by 83,000 in July, below the 100,000 job gain projected by LSEG.
Government payrolls declined by 10,000 in July. The decrease was driven by a reduction of 12,000 jobs in the federal government, which has seen payrolls decline by 84,000 since its January peak. Employees on paid leave or receiving ongoing severance pay are counted as employed in the BLS’ establishment survey.
State government added 5,000 jobs and local government had employment decline by 3,000 jobs in July.
The manufacturing sector shed 11,000 jobs in July, a steeper drop than the decline of 3,000 jobs estimated by LSEG.
Healthcare employment rose by 55,000 jobs in July, above the average monthly gain of 42,000 over the past 12 months. Most of July’s gains occurred in ambulatory healthcare services (+34,000) and hospitals (+16,000).
Social assistance added 18,000 jobs last month amid continued job growth in individual and family services (+21,000).
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The labor force participation rate was 62.2%, having changed little from a month ago – though it has declined by 0.5 percentage point in the last year.
The number of people considered to be long-term unemployed, defined as being jobless for 27 weeks or more, increased by 179,000 to 1.8 million. The long-term unemployed accounted for 24.9% of all unemployed people in July.
Workers who were employed part-time for economic reasons changed little in July, coming in at 4.7 million. These workers would’ve preferred full-time jobs but were working part-time because their hours were reduced, or they were unable to find full-time jobs.
Multiple jobholders decreased by 523,000 jobs in July and represented 5.1% of the labor force, the lowest level in the past year.
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The weaker-than-expected jobs report comes amid elevated levels of economic uncertainty stemming from trade policy, including the impact of tariffs on inflation and consumer prices. The Federal Reserve has held off on interest rate cuts again this week due to signs that tariff costs are starting to push inflation higher and further away from the central bank’s 2% target rate.
Fed Chair Jerome Powell previously noted that the central bank likely would’ve cut earlier this year but for concerns about tariffs fueling inflation and pushing consumer prices higher. On Wednesday, the June personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, showed headline PCE rose from 2.3% in May to 2.6% in June, while core PCE ticked higher to 2.8%.
“What had looked like a Teflon labor market showed some scratches this morning, as tariffs continue to work their way through the economy,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “A Fed that still appeared hesitant to lower rates may see a clearer path to a September cut, especially if data over the next month confirms that trend.”
Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management, noted that the weaker job growth in July coupled with the large revisions to the past two months’ gains “drops us below the critical 80K-100K replacement level, flashing warning signs as the labor market cools – the U.S. slowdown is starting to take shape.”
“Importantly, the underlying deterioration is grabbing our attention: cyclical employment has flatlined while falling participation rates are somewhat masking unemployment weakness,” she continued. “While overall levels are not flashing red, the trend is cause for concern. This print is just one number in a week filled with important economic data releases, but the miss directly challenges the Fed’s hawkish posture from this week’s FOMC meeting.”
The market’s expectations surrounding a September rate cut by the Federal Reserve rallied in response to the weaker-than-expected July jobs report after they were dampened by rising inflation data and the Fed’s hawkish stance earlier in the week.
The probability of the Fed leaving interest rates at its current range of 4.25% to 4.5% in September fell from 62.3% a day ago to 26.4% on Friday in the wake of the jobs report, according to the CME FedWatch tool. The chance of a 25-basis-point rate cut rose from 37.7% to 73.6% as well.
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