The U.S. labor market slowed dramatically in July and was far weaker than previously estimated for earlier months, raising concerns that President Donald Trump’s trade policies may be discouraging hiring.
The economy added just 73,000 jobs in July, while May and June job gains were revised downward by a combined 258,000, according to the Bureau of Labor Statistics (BLS). May’s initial estimate of 144,000 jobs was cut to 19,000, and June’s preliminary 147,000 total was revised down to only 14,000.
“That’s stunning,” said Diane Swonk, chief economist at KPMG.
The unemployment rate edged up to 4.2% from 4.1%, and the average duration of unemployment climbed to 24.1 weeks, the highest in more than three years.
Markets React, Rate Cuts Expected
Wall Street tumbled on the news: the Dow dropped more than 600 points (1.3%) by mid-morning, while the S&P 500 slid 1.4% and the Nasdaq fell 1.8%. Traders now see an 85% chance of a Federal Reserve rate cut in September, up sharply from 38% the day before.
Trade Policy and Tariff Uncertainty
Economists point to tariffs and unpredictable trade measures as a key drag on hiring.
“Tariffs and uncertainty are paralyzing employers,” said Gregory Daco, chief economist at EY-Parthenon.
Goods-producing industries shed 13,000 jobs, with manufacturing losing 11,000. Construction posted a modest 2,000 gain. Analysts say trade and immigration policies are also weighing on industries reliant on migrant labor.
Hiring Narrowed to One Sector
Job growth in July was almost entirely concentrated in health care and social assistance, which added 73,300 positions—offsetting weakness elsewhere.
Other key drivers of past growth slowed sharply:
Leisure and hospitality added just 5,000 jobs, with June’s figures revised down to 4,000.
State and local governments added 2,000 jobs; June’s previously reported 80,000 gain was cut to 20,000.
“We’re down to one leg holding up the labor market,” Swonk said. “And a one-legged stool is dangerous.”
Why Revisions Matter
The BLS jobs report relies on two surveys: the household survey, which informs the unemployment rate, and the establishment survey, which tracks employment, hours, and earnings. Initial estimates are frequently revised as more complete data is received, with larger adjustments released annually.
The May–June downward revisions totaling 253,000 jobs marked the largest correction since 1979, excluding the pandemic. Swonk noted the volatility reflects “historic shocks” hitting an economy that typically changes more gradually.
Warning Signs Ahead
Several troubling trends emerged in the July report:
Black unemployment rose to 7.2%, its highest since 2021, often a precursor to a broader rise in joblessness.
The labor force shrank for the third straight month, with participation falling to 62.2%, the lowest since November 2022.
The foreign-born workforce has declined, which economists warn could push wages higher, complicate hiring, and disrupt supply chains.
Sam Kuhn of Appcast noted this is the first three-month labor force decline since 2011. Preston Caldwell of Morningstar added that immigration enforcement, an aging workforce, and survey mismeasurement may all be factors.
Outlook
Economists warn that weakening job growth strips away a critical buffer against economic shocks.
“This report exposes the economy to the risk of recession,” said Daco. “The momentum is eroding, and in an environment of historic supply disruptions, that’s dangerous.”
