US Labor Market Cracks Widen: Job Growth Stalls at 73,000, Unemployment Rises to 4.2% | Massive 258K Downward Revisions | Fed Rate Cut Probability Surges

US Labor Market Cracks Widen: Job Growth Stalls at 73,000, Unemployment Rises to 4.2% | Massive 258K Downward Revisions | Fed Rate Cut Probability Surges

Key Takeaways

• Stalled job growth: July added just 73K jobs with massive downward revisions erasing 258K prior jobs .
• Unemployment rise: Rate climbed to 4.2% amid shrinking labor force participation .
• Fed pressure: Weak data spiked September rate cut odds to 81% .
• Sector collapse: Healthcare dominated hiring while manufacturing, services bled jobs .
• Policy whiplash: Trump’s tariffs and immigration raids choked labor supply and business planning .

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The Brutal Numbers

The Labor Department’s report hit like a sucker punch. July added 73,000 jobs, below the 110,000 forecast. But the real damage hid in the revisions. May’s gains got slashed from 144,000 to 19,000. June? 147,000 down to 14,000. That’s 258,000 jobs vanished overnight . Three-month job averages plummeted to 35,000 monthly, weakest since 2010 outside pandemic freefall . Unemployment ticked up to 4.2%, but the labor force shrank. Participation fell to 62.2%, its third monthly drop. Without that exodus, unemployment would’ve hit 4.3% .

Table: Jobs Report vs. Expectations

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Revisions: A Data Earthquake

Benchmark revisions weren’t tweaks, they were demolition. The BLS called them "larger than normal," a dry epitaph for credibility . Economists cursed "improper models." Michael Green at Simplify Asset Management spat, "If you don’t have reliable data, you make bad policy" . The Fed’s "solid labor market" narrative from Wednesday curdled by Friday. Traders flipped rate-cut bets: September odds rocketed from 38% to 81% . Treasury yields plunged, 10-years down 15 basis points, two-years down 20. Stocks tanked. The S&P 500 slid 1.5% .

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Where Jobs Died, And Lived

Healthcare and social assistance added 73,300 jobs, swallowing the entire July gain . Retail and financial services scraped up crumbs (15,700 and 15,000). Construction and hospitality? Stagnant. Immigration raids gutted their labor pools . Manufacturing, professional services, wholesale trade, all bled jobs. Federal employment dropped another 12,000. It’s down 84,000 since January . The diffusion index barely crept above 50%, meaning over half of industries fired more than hired .

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The Shrinking Labor Pool

38,000 people fled the workforce in July. Foreign-born workers plunged by 341,000 . Trump’s immigration crackdown and baby boomer retirements shrank supply. Michael Gapen at Morgan Stanley noted: "Immigration restrictions chill participation" . Wage growth stuck at 3.9% annually, not from worker power, but scarcity . Underneath: more part-timers, long-term unemployed. Median jobless duration stretched to 10.2 weeks .

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Trade War Whiplash

Trump’s 35% tariff on Canadian goods landed Thursday . PM Carney called it "disappointing," scrambling for CUSMA loopholes. Sectoral tariffs on steel, aluminum, autos already strangled planning. Businesses froze. Elizabeth Renter at NerdWallet saw it: "Predictive information changes weekly. We’re in a perpetual holding pattern" . Joel Kan at MBA tied trade uncertainty directly to job losses: "Services involved in trade saw declines" .

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The Fed’s Nightmare

Powell called unemployment "historically low" on Wednesday. By Friday, he looked blindfolded . Fed hawks Bowman and Waller dissented, warning delay risks "further labor market damage" . Stagflation whispers grew louder, tepid growth meets tariff-fueled inflation. Joseph Brusuelas at RSM put it bluntly: "Stagflation is the best description of the domestic economy" . The Fed’s September cut? Not salvation. Triage.

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What Comes Next

Expect negative payrolls soon, warns Jeff Schulze at ClearBridge: "Job creation’s at stall-speed with tariffs ahead" . The BLS’s upcoming benchmark revision could show even fewer jobs since April 2024 . Businesses absorbing tariff costs now face 35% duties, the "straw that breaks the camel’s back," per CFIB’s Dan Kelly . The K-shaped economy sharpens: healthcare thrives; factories gasp. Workers? Stretched thin. Debt piles up. Heather Long at Navy Federal Credit Union said it: "People are really stretched thin" .

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Stagflation’s Shadow

Tariffs now push prices up as demand slows. Import duties inflate costs, businesses pass some along. Domestic demand grew at its slowest in 2.5 years last quarter . The "low-hiring, low-firing" equilibrium broke. Olu Sonola at Fitch: "Job growth has stalled. We’ve shifted to virtually no hiring" . Wage growth masks hardship. Long-term unemployment edges toward 23.3%, a three-year high .

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FAQs

Q: How bad were the jobs revisions?
A: Catastrophic. May and June saw 258,000 jobs erased, May cut to 19K from 144K, June to 14K from 147K .

Q: Did tariffs cause this slowdown?
A: Directly. Uncertainty froze hiring. New 35% tariffs on Canada and others worsen the chokehold .

Q: Why did unemployment only rise to 4.2%?
A: Technicality. The labor force shrank. If participation held, it would’ve hit 4.3% .

Q: Will the Fed cut rates in September?
A: Markets say 81% yes. Weak jobs data overruled Powell’s Wednesday hesitation .

Q: Which industries hired in July?
A: Only healthcare (+73,300) mattered. Retail and finance added minor jobs. Most sectors bled .