In a surprising turn of events, the U.S. job market struggled in July, with only 73,000 new jobs added. This sluggish performance can be largely attributed to President Trump’s sweeping import tariffs, tighter restrictions on immigration, and a wave of federal layoffs.
What’s even more alarming is that previous job gains for May and June were drastically revised down by a whopping 258,000. This indicates a much weaker labor market than economists anticipated back in the spring and summer, which raises further concerns that the Federal Reserve may have to cut interest rates in September.
Unemployment Rate Edges Up
The Labor Department reported on August 1 that the unemployment rate has risen from 4.1% to 4.2%.
Before the release of this report, there were forecasts estimating that around 105,000 jobs would be created in July. However, Kathy Bostjancic, chief economist at Nationwide, mentioned in a note to clients, “The cracks in the labor market have widened significantly, escalating the pressure on the Federal Reserve to consider an interest rate cut.”
Current Job Market Situation
Despite Trump’s policies, economists had believed that the labor market remained fairly strong in recent months, with job additions averaging over 100,000 from April through June. However, new revisions revealed that May’s job addition estimate fell from 144,000 to just 19,000, while June’s numbers plummeted from 147,000 to 14,000.
On average, U.S. job gains have barely reached 35,000 over the last three months. Commenting on the findings, Josh Bivens, the chief economist of the Economic Policy Institute, noted, “To me, today’s jobs report feels like a prelude to a recession.”
Which Industries Are Looking Strong?
The health care sector continues to be a bright spot, adding 55,000 jobs. Sadly, many other sectors saw declines, with professional and business services down by 14,000, manufacturing losing 11,000 jobs, and the hospitality industry, which includes restaurants and bars, barely adding 5,000 jobs. For quite some time now, job growth in the private sector has been largely concentrated in health care and hospitality.
While businesses did add 83,000 jobs in July—an improvement over June’s meager 3,000 jobs—it still seems low overall. According to economist Thomas Ryan from Capital Economics, this indicates companies might be feeling more secure about employment amid reduced uncertainties surrounding tariffs introduced more than a few months ago.
What’s Happening with Federal Employment?
As the job market stats for the private sector are softening, the federal government is actively downsizing. In July alone, 12,000 federal employees were let go, adding up to a staggering total of 84,000 lost jobs since January. A federal hiring freeze has been extended until October, and numerous employees have accepted buyouts or been laid off. Due to ongoing court challenges, not all layoffs were reflected in the immediate monthly numbers. However, now that the Supreme Court has recently lifted the injunction, this may impact job numbers further.
Tariffs and Their Effect on Employment
Hiring in the private sector remains limited and primarily shows growth in only a few sectors including health care and leisure. The introduction of Trump’s tariffs created and continue to sustain high levels of uncertainty around consumer prices and purchasing, causing businesses to hesitate in hiring.
In fact, private companies added less than 100,000 jobs in June, while manufacturers have been hit hard by the tariffs, losing around 5,000 jobs monthly in the spring quarter.
Ahead of a midnight negotiation deadline on July 31, the White House decided to keep the base 10% tariff on imports from 100 countries but ramped it up to 15% for another 40 and 40% for an additional 30 countries. It’s estimated that average tariffs in the U.S. could rise from approximately 3% early this year to between 15% to 20% and potentially even higher, which may push a critical inflation measure up from 2.8% to above 3%.
How Deportations Impact the Job Market
The crackdown on migrants lacking permanent legal status has stepped up considerably, hampering job opportunities mainly in sectors like agriculture, construction, and leisure. According to economists, these domains lost an average of 7,000 jobs per month between March and May.
The heightened pace of deportations may have escalated in July after the Supreme Court lifted constraints that permitted migrants to contest removals. This scrutiny has severely squeezed labor supply, contributing to an overall workforce decline of over 300,000 since January.
The labor force participation rate—a measure of Americans actively working or looking for work—dropped to 62.2%, the lowest level observed since November 2022. While a smaller workforce tends to limit opportunities since there are fewer applicants overall, it also prevents the unemployment rate from spiking, according to economist Dante DeAntonio of Moody’s Analytics.
Contributing: Joey Garrison; Reuters
