The headline
The economy added 73,000 jobs in July, and the unemployment rate rose a tenth of a percentage point to 4.2%, the Bureau of Labor Statistics reported Friday.
Investors expected roughly 108,000 new jobs and for the unemployment rate to tick up to 4.2%.
The interpretation
Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner that the biggest surprise was a major downward revision in jobs from previous months.
“So it suggests we have a weakness, and the increase in employment is increasing at a slower rate,” Marks said, also noting the uptick in unemployment.
What it means for Trump
Friday’s report shows that job growth, which was relatively strong throughout the beginning of President Donald Trump’s tenure, may be starting to lose momentum thanks to uncertainty about tariffs and the slowdown of immigration.
Republicans hope that the added tax cuts in the One Big Beautiful Bill Act will help stoke investment by businesses.
In the meantime, the tariffs implemented by Trump are starting to affect more companies and households.
What it means for the Fed
Friday morning’s report immediately led investors to bet that the odds have risen that Federal Reserve officials will cut their interest rate target at their next meeting in September. Bond market prices on Friday morning indicated a 67% chance of a rate cut, whereas that was viewed as unlikely as of Thursday.
Trump has been pressing Federal Reserve Chairman Jerome Powell to lower rates to boost borrowing and spending. The central bank’s monetary policy committee declined to lower rates at a meeting this week.
With the labor market now looking weaker than previously thought, faster rate cuts are more likely.
The underlying reality
Friday’s report suggests that job growth has been decelerating in recent months, largely driven by huge downward revisions to the gains in May and June.
It is helpful to look at the overall trend for the labor market. With 258,000 fewer jobs added in May and June than previously reported, the three-month moving average of job gains was just 35,000 in July. That is below the rate needed to keep up with population growth.
Roughly 113,500 new payroll jobs are needed each month to keep unemployment from rising, according to the Federal Reserve Bank of Atlanta.
One complicating factor is the Trump administration’s crackdown on illegal immigration, which has dramatically slowed crossings at the southern border and led some to self-deport. It is unclear to what extent that has slowed employment growth. Economists at Deutsche Bank estimated that as few as 50,000 jobs a month might be needed to keep unemployment steady if the foreign-born population is declining.
Prime-age employment, relative to the overall population, is strong by historical standards, although it appears to have peaked in recent months.
Recession watch
The unemployment rate, taken from the jobs report’s household survey, is still low by historical standards. It inched up to 4.2% in July.
Recessions entail a rising unemployment rate.
Friday’s data suggest that the U.S. labor market is still moving away from triggering one major recession indicator, namely, when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, signaled the start of all postwar recessions.
The indicator was triggered in mid-2024 but is no longer signaling a recession.
Federal government employment
Federal government employment fell by 12,000 in May, and is now down about 84,000 since Trump came into office. The number of federal employees is a key statistic to watch to see the effects of the budget-cutting efforts of the Trump administration and the Department of Government Efficiency.
Manufacturing employment
Employment in manufacturing fell by 11,000 in July, adding to a downward trend.
The manufacturing sector is of particular interest because Trump has said that his tariffs will bring manufacturing to the U.S. from other countries. He has imposed tariffs on China and trading partners around the world, as well as on steel, aluminum, autos, auto parts, and a number of other goods and services.
Other industries
The leisure and hospitality sector in the past year has finally exceeded the employment levels it reached in February 2020, right before restaurants and bars were forced to shut down across the country. It has continued to grow steadily.
Construction employment has held up even as the housing market has taken a massive hit over the past few years, as mortgage rates have soared alongside the Fed’s rate hikes. That is in part because of a huge backlog of multifamily housing construction over the past year. Economists will watch closely for any sign of slowing hiring in construction.
