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The U.S. job market showed alarming weakness in July, with just 73,000 new jobs added and deep revisions to prior data suggesting economic conditions are far worse than previously believed.
The latest report from the Bureau of Labor Statistics, released Friday, left the unemployment rate unchanged at 4.2%. But the pace of hiring has slowed dramatically, with payrolls averaging just 35,000 over the past three months — the weakest trend since the early days of the pandemic in 2020.
Adding to concerns, revisions to May and June’s employment data erased nearly all previously reported gains. Instead of the 291,000 jobs initially estimated, the economy added just 19,000 over those two months combined. Most of July’s gains were in health care, with other sectors showing stagnation or losses.
“This is a major blow to the narrative of a strong labor market,” said Seema Shah, chief global strategist at Principal Asset Management. “The downward revisions are startling — and the fact that tariffs are only now starting to hit means worse may be ahead.”
Friday’s report follows President Donald Trump’s announcement of sweeping new tariffs, raising the effective import tax rate to 15%, the highest since the 1930s. While Trump has touted tariffs as a win for American workers, economists warn the policies are already weakening consumer demand and business investment.
Markets Slide as Fed Faces Pressure
Markets reacted sharply to the jobs data. The Dow Jones Industrial Average dropped over 700 points in early trading, while the Nasdaq fell more than 2%. Bond yields tumbled, signaling investor flight to safety, and the U.S. dollar index slid more than 1%, increasing the cost of imports and international travel.
The Federal Reserve, which held rates steady earlier this week, now faces renewed pressure to cut. After the report, futures markets shifted dramatically, with odds of a September rate cut jumping from 40% to 80%.
Two Trump-appointed Fed officials — Governors Christopher Waller and Michelle Bowman — released separate statements warning of mounting labor market risks and urging immediate policy easing.
“With underlying inflation near target, we should not wait until the labor market deteriorates before cutting rates,” Waller said. Bowman noted the job gains were “centered in an unusually narrow set of industries” like health and social services.
Inflation, Tariffs Fuel “Stagflation” Concerns
While job growth is slowing, price growth appears to be accelerating — creating a “stagflation” risk that poses a dilemma for the Fed. Daniel Hornung, a former deputy director of the National Economic Council, called the current environment “precarious.”
“It’s a turbulent end to the week with inflation rising and job creation falling — largely the result of the Administration’s stagflationary tariff policies,” said Hornung, now a senior fellow at MIT. “The situation is likely to worsen in the coming months.”
Trump, speaking from the White House Friday morning, blamed Fed Chair Jerome Powell for the downturn and called him “a disaster.” He had earlier demanded that the Fed “assume control” from Powell if interest rates remain high.
Yet critics argue that Trump’s own policies — particularly aggressive tariffs, abrupt rule changes, and mixed economic messaging — have injected volatility and dampened business confidence.
Earlier this week, the Trump administration celebrated a higher-than-expected GDP figure for the second quarter. But analysts noted that one-off factors, such as inventory buildup and government outlays, drove the growth. Ironically, that same report undermined Trump’s push for rate cuts by portraying an economy that appeared stronger than it now looks.
“The Trump Economy Has Arrived”
Commerce Secretary Howard Lutnick, in a celebratory post on X (formerly Twitter) Wednesday, wrote: “The Trump Economy has officially arrived.” But just two days later, the sentiment shifted dramatically.
With economic data flashing warnings and Trump’s trade agenda expanding, economists say the labor market may only grow more fragile as businesses brace for supply chain disruptions, higher import costs, and reduced consumer spending.
