U.S. Job Growth Stalls in July as Labor Market Weakens Further
Revised payroll numbers show economy flatlining; Fed under pressure to cut rates as hiring stalls
Washington, August 1 EST: The American labor market is losing altitude fast. Just 73,000 jobs were added in July, the weakest headline number since the pandemic’s immediate aftermath and it wasn’t even the worst news in the report.
Revisions to prior months carved a staggering 258,000 jobs off the board. May’s payrolls were slashed by 125,000, and June’s by 133,000, wiping out what little hiring momentum the second quarter had. The back-to-back cuts are the steepest outside a recession in decades.
Put differently: the three-month average is now barely 35,000 jobs a month. That’s not a slowdown. That’s stall speed.
No More Cushion
The unemployment rate ticked up to 4.2%, its highest since late 2022. And crucially, the drop in the labor force participation rate to 62.2% signals not just fewer people finding work, but more giving up looking altogether.
More telling is where the weakness is showing up. Manufacturing, professional services, and government jobs all shrank. Health care and social assistance added about 73,000 jobs a number that effectively carried the entire report but gains there were offset by cuts elsewhere.
Private-sector hiring is getting patchier. Some firms are pulling back on job offers before candidates even start. Others are slow-walking replacements after departures. It’s not a hiring freeze, but it’s certainly not thawed.
Fed Caught Between Two Fires
Markets responded swiftly. The Dow fell over 600 points, and Treasury yields sank as traders recalibrated for a more dovish Federal Reserve. Expectations of a September rate cut jumped from 38% to over 80%, as measured by CME FedWatch.
This wasn’t just investor overreaction. For the first time in more than 30 years, Fed governors dissented publicly Vice Chair Michelle Bowman and Governor Christopher Waller are both now on record supporting a cut to keep the labor market from slipping further.
Meanwhile, Chair Jerome Powell isn’t ruling out a move, but he’s clearly watching unemployment more than inflation at this point. “The jobs number is what matters now,” he told reporters.
That’s a reversal from 2022 and 2023, when the Fed obsessed over price stability and tolerated a tight labor market. Now it’s the labor side that looks brittle.
It’s Not Just Cyclical
What makes this downturn more complicated is how structural it’s starting to look. Employers aren’t just cautious they’re constrained.
Immigration is down sharply compared to pre-2020 levels. Sectors like construction, hospitality, and logistics are feeling the squeeze. And thanks to higher tariffs under Trump’s revived trade policy, input costs are climbing at the same time demand is cooling a recipe that squeezes margins and chills hiring.
On top of that, the aging U.S. workforce means fewer entrants are available to backfill open roles. Even if companies wanted to scale headcount, the talent pipeline is thinning.
“It’s like we’re flying with one engine out and the second losing fuel,” said a senior economist at a major bank, speaking off the record. “You can hold altitude for a while, but not forever.”
No Clear Policy Playbook
There’s no obvious lever to pull. Monetary policy is blunt, and the Fed can’t reverse demographics or rewrite trade policy. Fiscal policy is constrained, too especially in an election year where spending is politicized and divided government is likely.
That’s left businesses doing what they always do when the data gets murky: hedging. CEOs are quietly trimming budgets, slowing down hiring plans, and holding off on capex. CFOs are asking harder questions about ROI and timeline. And in boardrooms, the conversation has shifted from “soft landing” to “slow burn.”
This is no longer a question of whether growth is slowing. It’s about how much damage gets done on the way down.
What to Watch
All eyes now turn to the September Fed meeting. Another weak report between now and then could all but guarantee a rate cut, especially if unemployment climbs further.
Meanwhile, the Bureau of Labor Statistics is preparing for its annual benchmark revisions, due in September. Those will cover employment data from April 2024 to March 2025, and there’s a growing expectation they’ll show the labor market was weaker all along.
If that’s the case, the jobs slowdown isn’t just a summer story it’s a sign the cycle already turned, and no one noticed until it was too late.
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A Wall Street veteran turned investigative journalist, Marcus brings over two decades of financial insight into boardrooms, IPOs, corporate chess games, and economic undercurrents. Known for asking uncomfortable questions in comfortable suits.
