Key Points:
- July hiring sharply down, recession risks rising.
- Fed likely to cut rates to counter slowdown.
- Tariffs and weak spending weigh on markets.
The July U.S. jobs report revealed a sharp drop in hiring, with only 73,000 jobs added, confirming signs of a weakening economy amid rising tariff pressures and soft consumer spending.
Published on August 4, the latest employment data from the Bureau of Labor Statistics showed significantly lower job growth than anticipated. With prior months revised downward, the three-month average has plunged to just 35,000 jobs—less than one-third of the pace recorded during the same period last year.
Weak Labor Data Fuels Fears of Economic Contraction
Though historically a lagging indicator of recessions, the labor market’s pronounced deceleration has strengthened arguments that the U.S. economy is entering a phase of broad-based slowdown. Economists point to diminished consumer spending, sluggish income growth, and the compounding effects of tariffs as key drivers of economic fragility.
“We are in a broad economic slowdown. Whether it translates to a recession or not is the question that I’m asking now,” said Luke Tilley, chief economist at Wilmington Trust, which assigns a 50% probability of a U.S. recession in the coming quarters.
Data from Goldman Sachs supports this outlook, forecasting GDP growth of just 1% in the final two quarters of 2025. The investment bank cites a slowdown in consumer spending and real income growth, compounded by tariff-driven inflation and reduced transfer payments expected in the fourth quarter.
Gross domestic product increased by 3% in the second quarter, but the average for the first half of the year stands at only 1.2%. Analysts attribute the Q2 jump largely to a decline in imports following a surge in the first quarter, rather than broad economic strength.
Political Fallout and Uncertain Federal Reserve Response
The report has sparked both political controversy and economic concern. President Donald Trump dismissed the figures as “FAKED” and “RIGGED” in a Truth Social post and responded by firing Bureau of Labor Statistics Commissioner Erika McEntarfer. The White House maintains that the economy remains fundamentally sound and predicts improvement following implementation of Trump’s new economic legislation, dubbed the One Big Beautiful Bill Act.
Kevin Hassett, Director of the National Economic Council, acknowledged the troubling implications of the data during an interview with CNBC, stating, “That July U.S. jobs number, if the revision turns out to be true, does suggest that there’s less momentum than we thought.”
Economists are now closely watching the Federal Reserve, which held interest rates steady at its last meeting. However, expectations for a rate cut at the Fed’s September meeting have increased sharply since the July U.S. jobs, with futures markets now pricing in nearly a 90% probability of a cut.
Boader Indicators and Market Reaction
Other economic signals reinforced concerns of a downturn. Factory orders declined by 4.8% in July U.S. jobs—the worst reading since January 2024—while the Conference Board’s Employment Trends Index fell to its lowest level since October 2024. Housing market data has also weakened, with home prices remaining high amid a persistently elevated 30-year mortgage rate near 7%.
“This confirmed a lot of our suspicions,” said George Mateyo, Chief Investment Officer at Key Private Bank. “We were waiting for the other shoe to drop, and now we’re starting to see a few shoes drop.”
While the Dow Jones Industrial Average has fallen 1.7% over the past month, markets rallied Monday on optimism about a potential long-term tariff deal between the U.S. and the European Union. Nonetheless, Mateyo warned of “a lot of complacency” among investors and urged clients to reassess their exposure to risk.
Despite the slowdown, analysts stop short of predicting an imminent recession. “The most likely outcome is still weaker economic growth in the second half of 2025 and early 2026 compared to 2024,” said Gus Faucher, Chief Economist at PNC. “But given the revised read on the labor market, recession risks are elevated.”
As multiple indicators point to economic deceleration, the coming weeks of data and policy decisions will likely shape the trajectory of the U.S. economy into 2026.
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