Key Takeaways
- U.S. employers added 73,000 jobs in July, down from the prior month and lower than economists expected.
- The number of jobs added in May and June were revised sharply lower, showing that the labor market is far weaker than most believed.
- This puts more pressure on the Federal Reserve to cut interest rates at its meeting in September.
A dramatic decline in U.S. labor market growth surprised economists and investors, who now expect the Federal Reserve to cut interest rates at its next meeting in September.
The July payroll report showed U.S. employers added 73,000 jobs in July, lower than economists expected, while the unemployment rate increased to 4.2%, according to the Bureau of Labor Statistics.
Prior jobs reports were revised sharply lower. May’s job gains now stand at 19,000, down from the originally reported 144,000, while the June jobs number shrank to just 14,000 from 147,000.
“The numbers today, and the revisions in an important way, suggest that maybe the economy and the labor market are weakening more broadly,” Atlanta Fed President Rafael Bostic said on CNBC after the report’s release.
The Dow and the S&P are each down well over 1% after the weak report and Trumps overnight move to hike tariffs on dozens of countries.
Weak Report Puts More Pressure on Fed to Cut Rates
The latest jobs numbers are likely to pressure the Fed to cut interest rates. Thecentral bank earlier this weekleft its key rate unchanged. Fed Chair Jerome Powell said officials need to see more data on how tariffs are affecting inflation before adjusting rates.
Some economists have already said that the jobs numbers have them considering rate cuts. “[The data] suggest that the risks to the employment side of the mandate may be coming more into balance with those of inflation, and that’s something that I’ll really have to look at as I think about the appropriate path for policy,” Bostic said.
President Donald Trump ramped up the pressure with a post targeting Powell on Truth Social shortly after the report’s release.
“Too Little, Too Late. Jerome ‘Too Late’ Powell is a disaster. DROP THE RATE!” Trump wrote.
Economists, Investors See the Fed Moving Towards Rate Cuts
Economists expect the weak jobs data to push the Fed towards a rate cut at its September meeting, even as inflation remains above the Fed’s target of 2%.
“This is a gamechanger jobs report. The labor market is deteriorating quickly,” said Heather Long, chief economist at Navy Federal Credit Union. “The Federal Reserve needs to seriously consider a September rate cut. It’s clear companies are not hiring at all in this environment of uncertainty.”
Investors also quickly adjusted their expectations. The CME Group’s FedWatch Tool now shows that traders have priced in a 82% chance for a rate cut in September. That’s up from a 37% probability from before Friday’s release of the jobs data.
After Months of Warnings, the Storm Hits
Job creation has slowed in recent months, and job openings declined in June. Employers have stayed in low-hiring, low-firing limbo as tariffs and high interest rates weigh on the economy.
“We’re finally in the eye of the hurricane. After months of warning signs, the July jobs report confirms that the slowdown isn’t just approaching—it’s here,” said Daniel Zhao, chief economist at employment website Glassdoor.
Do you have a news tip for Investopedia reporters? Please email us at[email protected]
