The latest monthly jobs report showed the US labor market added fewer jobs than expected in July while the unemployment rate moved higher, and revisions to prior months' numbers revealed significantly fewer jobs had been added than initially thought.
The US economy added 73,000 nonfarm payrolls in July, less than the 104,000 expected by economists. The unemployment rate moved up to 4.2% from 4.1% the month prior, in line with economists' expectations.
In its release, the BLS said downward revisions to the May and June jobs reports "were larger than normal," with those changes showing more than a quarter million fewer jobs were added to the economy over those months. May's job gains were revised down to 19,000 from 144,000, while June's additions were cut to just 14,000 from the 147,000 initially reported.
"The July jobs report was much weaker than expected and raises the odds of a Fed rate cut in September," Oxford Economics lead economist Nancy Vanden Houten wrote in a note to clients. "The increase in nonfarm payrolls in July was softer than anticipated but the real story was the revisions that wiped out nearly all the job gains in May and June."
Average hourly earnings in July rose 3.9% over the past year and 0.3% over the prior month. Economists expected wages to rise 0.3% over the past month and 3.8% over the prior year. Meanwhile, the labor force participation rate fell to 62.2% from 62.3% the month prior.
The latest labor market data was released just two days after the Federal Reserve opted to hold interest rates steady at its July meeting. Fed Chair Jerome Powell described the labor market as "solid" and pointed to a "historically low" unemployment rate as a key metric to watch when assessing the health of the jobs picture in America.
Powell admitted job creation has shown slowing, but that has come with a decrease in labor supply due to less immigration, therefore keeping the broad labor market picture in balance.
Following Friday's jobs report, the probability of a September interest rate cut from the Fed surged to 67%, up from just 38% the day prior, per the CME FedWatch Tool.
"The clear loss of hiring momentum in this report will embolden the FOMC doves, raising the chance of a September cut," Capital Economics North America economist Thomas Ryan wrote in a note to clients.
Recent data has also reflected signs of the labor market slowing. On Wednesday, data from ADP showed private payrolls grew by 104,000 in July, above the 75,000 expected by economists and a rebound from the 23,000 job losses seen in June. But as the chart below shows, overall hiring momentum has slowed in the private sector in recent months.
"We are in a labor market that has recalibrated to a lower average level," ADP chief economist Nela Richardson told Yahoo Finance on a call with reporters. "The good news here is that that level is still solid enough to support the consumer, and that ultimately will be the tried-and-true test of the health of the labor market. Will consumers keep spending?"
Elsewhere in labor market data, new data from the Bureau of Labor Statistics showed 7.44 million jobs open at the end of June, a decrease from the 7.71 million seen the month prior. The hiring rate ticked lower to 3.3% from the 3.4% seen the month prior and stood at its lowest level since November 2024.
