Weak U.S. Jobs Report Increases Expectations for Fed Rate Cut in September

U.S. job growth slowed significantly last month, with the Labor Department reporting an increase of just 73,000 payrolls—well below economists’ forecasts. More concerning to analysts were major downward revisions to previous months’ data, which reduced May’s job gains to 19,000 and June’s to 14,000, resulting in a combined cut of 258,000 jobs. The average monthly gain over the past three months now stands at only 35,000.

The unexpectedly weak figures led President Donald Trump to dismiss Erika McEntarfer, commissioner of the Bureau of Labor Statistics. The reliability of the data was questioned by some on Wall Street, with Eric Pachman, chief analytics officer at Bancreek Capital Advisors, expressing doubts about the accuracy of the latest numbers.

The unemployment rate edged up to 4.2% from 4.1%, even as the labor force shrank. Manufacturing continued to decline, with factories cutting 11,000 jobs in July, following similar losses in May and June amid ongoing trade tensions.

Financial markets reacted sharply to the report. The S&P 500 fell 1.6% and the Nasdaq dropped 2.2%. Treasury yields also declined, as investors increasingly expect the Federal Reserve to lower interest rates at its September meeting. Jamie Cox, managing partner for Harris Financial Group, said, > "September is a lock for a rate cut and it might even be a 50-basis point move to make up the lost time."

The labor market’s slowdown comes as the Fed recently chose to keep rates steady, with Chairman Jerome Powell indicating a wait-and-see approach regarding the impact of tariffs on inflation. Some analysts, such as Adam Hetts of Janus Henderson Investors, noted that the scale of the revisions has significantly altered the narrative about the labor market’s resilience.

Despite the weak headline numbers, other indicators such as steady wage growth and weekly jobless claims suggest the employment situation is not collapsing. Analysts are divided on whether the slowdown is due to reduced labor supply—potentially linked to immigration policy—or weaker demand. The number of foreign-born workers in the labor force has declined by 1.2 million over the past six months.

Preston Caldwell, chief U.S. economist at Morningstar, argued that the Fed should be cautious, stating, > "The speed of the deceleration in job growth, along with uncertainty about what exactly the data means, should be alarming to the Fed, and argues strongly for a September cut as a prophylactic measure at the least."

However, Bill Adams, chief economist for Comerica Bank, pointed out that tariffs are still contributing to inflation, which could complicate the Fed’s decision. He noted that if the labor force continues to shrink and inflation remains elevated, policymakers may opt to keep rates steady at their next meeting.