U.S. job growth is set to have slowed sharply in July, with economists projecting a gain of only 110,000 nonfarm payroll jobs, down from the 147,000 created in June. The unemployment rate is forecast to increase modestly to 4.2% from June’s 4.1%, a Reuters survey found. Although this decline indicates some natural adjustments to the trend of government hiring, increasing tariffs, policy uncertainty, and labour supply issues are placing pressure on already weakening job markets.
The job-cut forecast comes after an unusually robust June, when a bump in state and local education jobs briefly fuelled employment numbers. Analysts indicate the increase was a statistical fluke related to the cyclical pattern of the academic calendar and that July’s numbers better represented the reality of employment trends.
Tariffs and Fed Policy in the Spotlight
The Federal Reserve, in its recent move, left the benchmark rate unchanged at 4.25%-4.50%, reflecting a conservative “wait-and-see” approach. Chair Jerome Powell reiterated that although labor supply and demand seem better balanced, underlying risks persist. Of particular note are new tariffs imposed by President Trump, such as a 35% tariff on Canadian imports, which have begun to affect business sentiment and expenses, potentially fueling inflation.
These trade tensions are also making it harder for the Fed to navigate. As inflation ticks higher because of tariffs, hopes for a September rate cut have eroded, with many now eyeing October or beyond as the time for potential easing—if at all this year.
Labor Supply Constrained
Its workforce is also fighting structural challenges of lesser immigration as a result of policy enforcement and the mass retirements of baby boomers, which decrease the number of workers on the market. Economists put the current pace needed to match the number of working-age people at around 100,000 jobs per month or less.
RBC Capital Markets economist Michael Reid commented, “Companies are reluctant to make long-term hiring commitments with no certainty about tariff policies or operating expenses for the next two or three years.”
Job Losses and Cautionary Hiring
The public sector could experience additional job losses, particularly in the federal government, with spending reductions and possible layoff threats hanging over its head—albeit the White House said numerous agencies would spare mass firings. Private sector hiring has similarly eased, with business surveys and anecdotal evidence indicating a summer slowdown in hiring activity.
Stephen Stanley, Santander U.S. Capital Markets Chief U.S. Economist, said that a lot of companies postponed hiring as policy uncertainty increased and confidence decreased. He expects private payrolls in July most likely slowed even further, particularly after June saw the weakest job gains in eight months.
What’s Next?
The employment report might not be sufficient to get the Fed to act in the near future, but it will contribute to mounting evidence that the U.S. labour market is slowing down. Gregory Daco, Chief Economist at EY-Parthenon, commented, “The July jobs report is unlikely to shake the Fed out of its ‘wait-and-see’ posture.”
Yet, most attention is focused on September’s payrolls benchmark revision, which has the potential to drastically redefine the image of job growth over the preceding year. If the revision reveals a drastic downward correction, as the Quarterly Census of Employment and Wages indicates, the Fed may be compelled to intervene.
FAQs
Why did job growth slow in July?
The slowdown is largely attributed to the close of education seasonals, uncertainty of new tariffs, and labor shortages brought about by lower immigration and retirements.
Will the increase in unemployment to 4.2% concern the Fed?
Not much. The level is still within the tight 4.0%–4.2% range since May 2024. The Fed cares less about short-term trends and more about long-term trends and inflation.
How do tariffs influence job growth?
Tariffs increase business costs, which can lead to hiring freezes or layoffs as companies delay investment and expansion decisions.
Could the Fed still cut rates this year?
It’s possible, especially if September’s payroll revision reveals weaker-than-expected job growth. But rising inflation from tariffs is complicating that decision.
What sectors are most affected by hiring changes?
Government, especially education and federal roles, has seen volatility. The private sector is broadly cautious, especially small and mid-sized businesses navigating policy uncertainty.
