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Caution tape hangs near the steps of Federal Hall across from the New York Stock Exchange in New York.<\/p>\n
Michael Nagle | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Though it may have been controversial, the July jobs report helped confirm the notion that the U.S. economic engine is sputtering.<\/p>\n
Nonfarm payrolls rose by just 73,000<\/a> for the month, below even the muted expectations. Heavy downward revisions to the May and June count took the three-month average job gains down to just 35,000, or less than one-third the pace for the same period a year ago.<\/p>\n Traditionally a lagging indicator when it comes to recessions, the weakness in job growth points to an economy that may be slowing even more than some of the traditional metrics are showing.<\/p>\n \u201cWe are in a broad economic slowdown. Whether it translates to a recession or not is the question that I\u2019m asking now,\u201d said Luke Tilley, chief economist at Wilmington Trust. \u201cThe labor market is key, and it\u2019s hard to gauge what\u2019s going to happen.\u201d<\/p>\n Wilmington has a 50% chance the U.S. slides into recession. Tilley cites concerns over the longer-term hit from tariffs that could depress consumer spending, which drove 68% of all economic activity in the first quarter, as well as business investment and hiring.<\/p>\n In fact, he said pressure from tariffs is one of the reasons that the pass-through from President Donald Trump\u2019s levies<\/a> hasn\u2019t hit inflation as hard as many economists expected.<\/p>\n \u201cIf consumers are shouldering the burden, they\u2019re spending more for imports and they will cut back on recreational spending, airlines, Disney trips, fun parks, hotels, all of that,\u201d he said. \u201cWe\u2019ve seen that in the data, and that\u2019s why there\u2019s not inflationary impact.\u201d<\/p>\n<\/div>\n To be sure, the growth picture is far from dire at this point.<\/p>\n Gross domestic product increased<\/a> at a 3% annualized pace in the second quarter, providing on its face a picture of a vibrant economy.<\/p>\n However, when looked at for the first half, GDP averaged only about 1.2% growth, with consumer spending barely up 1%. The primary reason for the big jump in Q2 was a reversal in the import surge during the first quarter as companies sought to get ahead of tariffs. In the first quarter, growth fell 0.5% amid the swell in imports, which subtract from the GDP calculation.<\/p>\n If the July unemployment report portends what\u2019s to come, the picture is bound to get gloomier.<\/p>\n \u201cThe most likely outcome is still weaker economic growth in the second half of 2025 and early 2026 compared to 2024 and the first half of this year, but no recession,\u201d Gus Faucher, chief economist at PNC, wrote following the jobs release Friday.<\/p>\n \u201cBut given the revised read on the labor market, recession risks are elevated, and higher tariffs make that risk even higher,\u201d he added. \u201cIt is easy to see how very weak job growth and higher tariffs could cause consumers to cut back on their spending and businesses to cut back on their investment, pushing the economy into a recession.\u201d<\/p>\n Goldman Sachs forecasts growth to be just 1% in the final two quarters due in part to slower consumer spending and \u201ca sharp slowdown in real income growth that reflects weaker job growth, higher tariff-driven inflation, and reductions in transfer payments in [the fourth quarter] that were included in the recent fiscal bill.\u201d<\/p>\n \u201cFriday\u2019s payrolls report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months. Taken together, the economic data confirm our view that the US economy is growing at a below-potential pace,\u201d the firm said in a note over the weekend.<\/p>\n<\/div>\n Despite the cloudy outlook, White House officials insist the economy is sound and will only get better once President Donald Trump\u2019s One Big Beautiful Bill Act kicks in.<\/p>\n Trump himself pushed back hard against the July jobs report, firing Bureau of Labor Statistics Commissioner Erika McEntarfer<\/a> on Friday as he called the numbers \u201cFAKED\u201d and \u201cRIGGED\u201d in a Truth Social post<\/a>.<\/p>\n However, White House economist Kevin Hassett on Monday told CNBC the revisions were concerning even as he also touted broader economic strength.<\/p>\n \u201cThere are a lot of really good reasons to be super optimistic about second half of the year. But absolutely that jobs number, if the revision turns out to be true, does suggest that there\u2019s less momentum than we thought,\u201d said Hassett, the director of the National Economic Council who is thought to be a leading contender for a vacant seat on the Federal Reserve Board of Governors.<\/p>\n<\/div>\n Trump administration officials have been calling on the Fed to cut its benchmark funds level that feeds into multiple other consumer interest rates. The Fed last week held the rate steady<\/a>, and several officials made public comments since the report saying they still think the labor market is strong.<\/p>\n However, further signs of economic weakness could change that.<\/p>\n Housing data<\/a> has been poor lately, reflecting a declining level of buyers along with rising prices and stubbornly high mortgage rates.<\/p>\n \u201cWhat are we doing with a national average 30-year mortgage rate still close to 7% in an economy growing at 1%?\u201d veteran economist and strategist Jim Paulsen wrote in a Substack post<\/a>. \u201cThere is nothing \u2018healthy or solid\u2019 about these [economic] numbers, they are way below the 2% stall speed, and shout for help.\u201d<\/p>\n Other economists echoed that sentiment.<\/p>\n \u201cTo me, today\u2019s jobs report is what entering a recession looks like,\u201d Josh Bivens, the chief economist at the Economic Policy Institute, a left-leaning think tank, wrote after the Friday report.<\/p>\n \u201cThe economy is on the precipice of recession. That\u2019s the clear takeaway from last week\u2019s economic data dump,\u201d Mark Zandi, chief economist at Moody\u2019s Analytics, posted Sunday<\/a> on X.<\/p>\n Monday bought more bad news, with factory orders<\/a> falling 4.8%, actually a touch less than the Dow Jones estimate though the worst reading since January 2024. Also, the Conference Board\u2019s employment trends index<\/a> declined in July, hitting its lowest since October 2024.<\/p>\n<\/div>\n Amid the worrying economic signs, stocks have fallen though not dramatically. Wall Street rallied Monday<\/a>, with hopes rising that the U.S. and European Union will be able to reach a long-term tariff agreement.<\/p>\n Trading has been volatile lately, with the Dow Jones Industrial Average off 1.7% over the past month.<\/p>\n \u201cThis confirmed a lot of our suspicions. Frankly, we were waiting for the other shoe to drop, and now we\u2019re starting to see a few shoes drop,\u201d George Mateyo, chief investment officer at Key Private Bank, said of the jobs numbers.<\/p>\n Trading lately has seen \u201ca lot of complacency\u201d as investors largely ignored the political storms in Washington and took a best-case-scenario outlook toward the economy, Mateyo added.<\/p>\n \u201cA lot of people were anticipating the fact that the good times would keep rolling, and indeed they probably will,\u201d he added. \u201cWe still don\u2019t think the base case is that a recession is going to manifest itself. But it\u2019s going to be a pretty big slowdown, given the fact that uncertainty is really high.\u201d<\/p>\n Markets also have vacillated in terms of what they see the Fed doing.<\/p>\n Just prior to the jobs report, traders were assigning low odds to a rate cut at the central bank\u2019s September meeting, then swung back to pricing in Monday a nearly 90% probability, according to the CME Group<\/a>. However, there are multiple key data releases until then, and Fed rhetoric this far has been tepid regarding easing.<\/p>\n Mateyo sees the economic and policy uncertainty adding up to a recipe for caution.<\/p>\nReasons for optimism<\/h2>\n
Looking to the Fed<\/h2>\n
Markets have been resilient<\/h2>\n