U.S. adds 73,000 jobs in July

Investing.com - The U.S. added fewer jobs than anticipated in July, while the prior month’s total was sharply lowered, possibly complicating the future policy path of a Federal Reserve simultaneously grappling with emerging signs that sweeping tariffs may be starting to feed into price growth.

Nonfarm payrolls last month came in at 73,000, rising from 14,000 in June -- a steep downward revision from the initial figure of 147,000. May’s amount was also brought down to 19,000 from a prior reading of 144,000.

Together, employment in May and June combined is 258,000 lower than previously reported, a result that the Labor Department’s Bureau of Labor Statistics said factored in additional information received from businesses and government agencies since the last published estimates.

Economists had predicted that July’s number would stand at 106,000. As many analysts expected, gains in state and local government education jobs, which accounted for much of June’s payrolls report, gave back some of those increases.

Government roles also dipped, reflecting an ongoing effort by the White House to slash the size of the federal workforce. Since reaching its peak in January, federal government jobs are down by 84,000.

Employment showed little change in other major industries. Separate data points this week have seemed to paint the picture of a U.S. labor market which features muted layoffs and fewer people willing to leave their current roles to pursue new opportunities -- trends that could indicate some cooling in what has recently been a resilient job market.

The unemployment rate accelerated slightly to 4.2% from 4.1%, in line with estimates. 

Economists have flagged that they anticipate the jobless rate will climb in the second half of 2025, although some see the uptick as more limited as a Trump administration crackdown on undocumented immigration shrinks the available pool of labor. 

The labor force participation rate in July edged down only marginally to 62.2% from 62.3%. Strategists at Morgan Stanley (NYSE:MS) have suggested that recent months have pointed to the possibility of more "downward pressure" on the participation rate due to the Trump administration revoking the temporary legal status of hundreds of thousands of migrants.

In theory, an easing labor market could persuade the Fed to cut interest rates to spur on spending and investment.

But the Fed is also now dealing with inflation that is hovering above its long-term 2% target, and some early indicators appear to be suggesting that the costs of President Donald Trump’s tariffs are starting to contribute to the prices of certain trade-exposed items. Policymakers, as a result, may be keen to keep rates relatively elevated to prevent inflation from soaring.

On Wednesday, the central bank chose to leave borrowing costs unchanged for a fifth straight meeting, even as it has faced intense pressure from Trump to quickly cut rates to help boost the economy. While that decision was widely anticipated, what the Fed chooses to do at its next gathering in September is unclear.

Powell has argued that a resilient labor market has given the central bank room to take a wait-and-see approach to policy actions. But, analysts at CIBC Economics argued in a note, Friday’s nonfarm payrolls report "shows a different picture of the job market" than the one put forward by Powell.

This may raise the "probability of an earlier Fed move," the CIBC analysts said.

"That being said, it depends on how sticky inflation proves in the next few reports and further weakness in the job market. After all, the unemployment is still at [a] reasonable level and one report, however bad, won’t be enough to fully convert all the hawks."