The US job market seems to have chugged along for the first half of this year — but the risk is rising that employment growth is running out of steam.
The July jobs report, due for release at 8:30 a.m. ET Friday, is expected to show a net gain of 115,000 jobs, which would mark a considerable downshift from June’s 147,000 jobs. The unemployment rate is expected to tick up to 4.2% from 4.1%, according to FactSet consensus estimates.
Through June, the US has added between 102,000 and 158,000 jobs per month, Bureau of Labor Statistics data shows. Those are solid gains and widely thought to be in line with the breakeven point, where the jobs added keep up with labor force growth and hold the unemployment rate steady.
However, outside of the pandemic recession in 2020, that current 130,000-jobs-per-month pace is the weakest January-to-June average since 2010, when the US economy was licking its wounds from the Great Recession.
“We’re getting more and more reliant on a very small part of the economy to drive any sort of job growth,” Heather Long, chief economist for Navy Federal Credit Union, said in an interview with CNN. “There just are no jobs right now, AI or no AI, tariffs or no tariffs.”
Hiring has become anemic (with the exception of a select few industries). Businesses have held back on adding new workers in large part because they’ve been gripped by uncertainty about where tariffs might ultimately settle in President Donald Trump’s volatile trade war.
“When companies can’t make predictions about the economy and therefore their operations, they tend to wait for more information,” Elizabeth Renter, senior economist at NerdWallet, wrote earlier this week. “In the current environment, that predictive information is changing from week to week, so we’ve ended up in a perpetual holding pattern when it comes to expanding or cutting back on workers.”
Couple that with reticent workers discouraged about their job-hopping prospects, and it results in a labor market with little turnover, instead of the solid churn that’s needed for a healthy economy.
The latest federal data on labor turnover, which was released earlier this week, further confirmed that trend: The Job Openings and Labor Turnover Survey showed fewer job openings in June, hiring at a one-year low and a quits rate below the five-year average.
Other closely watched indicators show that layoff activity hasn’t accelerated recently, despite job cut announcements trending higher this year (in large part due to the Trump administration’s gutting of federal agencies).
Initial jobless claims remain at low levels; however, continuing unemployment claims have consistently butted against a November 2021 high.
New Labor Department data Thursday showed that first-time claims for unemployment insurance made last week (considered a proxy for layoffs) ticked up to 218,000 from 217,000 the week before. The number of continuing claims held at 1.946 million, staying close that nearly four-year high.
In terms of what could be coming down the pike, Challenger, Gray & Christmas’ latest job cut announcement tracker showed 62,075 layoffs announced in July, up 29% from June.
“We are seeing the federal budget cuts implemented by [the Department of Government Efficiency] impact nonprofits and health care in addition to the government,” said Andrew Challenger, senior vice president of the outplacement and coaching business. “AI was cited for over 10,000 cuts last month, and tariff concerns have impacted nearly 6,000 jobs this year.”
With hiring stalled out and labor turnover grinding to a halt, more people are staying unemployed for longer.
The unemployment rate went down in June, but so did the size of the labor force, and participation rates fell off as well.
The unemployment rate is a critical indicator of economic health; however, in part due to seismic shifts around immigration, it’s losing its luster and instead turning into a math problem.
Foreign-born workers, irrespective of legal status, have accounted for about three-quarters of total labor force growth since February 2020, according to an analysis released in June from Wells Fargo economists. And recent efforts to curtail unauthorized immigration are contributing to a shrinking of the labor force, they noted.
Health care and education drive gains
Job growth tends to slow in the summer months and at the turn of some firms’ fiscal years, but the US labor market is also in the thick of a structural slog, with job gains overwhelmingly concentrated in a fraction of industries.
“The job market is frozen outside of health care and education, and this is a real hardship for anyone looking for a job,” said Navy Federal Credit Union’s Long.
The average duration of unemployment rose to 23 weeks in June, and the share of unemployed workers who have been out of a job for 27 weeks or more rose to 23.3%, edging near a three-year high, according to BLS data.
In June, health care, social assistance and state and local government businesses — which account for under 15% of overall employment — were responsible for 94% of the month’s job gains, BLS data shows.
It’s worth noting that there likely were some anomalies in the estimated gains for state and local government entities in June (they were clocked at +80,000). Education jobs typically fall in the summer months, but the drop-off this year might not have been as sharp as years past, so the BLS’ seasonal adjustment factors registered that as a strong gain instead, economists noted last month.
The expectation is that health care, social assistance and leisure and hospitality will drive the job gains in July.
June’s diffusion index of private industries, which measures the share of sectors adding jobs (essentially providing a window into how broad-based hiring was), measured 49.6. If the measure is below 50, then more industries lost jobs than added them.
While some tariff-related price hikes are starting to appear online and in stores (and they’re starting to bear out a little in the inflation data as well), the biggest impact they’ve had on the labor market so far is the uncertainty they’ve caused.
In terms of reasons for drags on the labor market, Long puts tariff-related uncertainty as the clear No. 1, followed by a continued post-pandemic normalization and rebalancing of workforces, and then at a far third (for now) the AI effect.
Wages have continued to outpace inflation, but the events of the recent months have kept the Federal Reserve on pause and brought the return of the “K-shaped economy,” where the have-nots are struggling and an upper slice of the haves is driving most of the growth.
“People are really stretched thin,” Long said, adding that continued weakness in the labor market could negatively compound ongoing stressors such as growing household debt.
“There simply is not much hiring, white-collar or blue-collar,” she said. “I’m hopeful that will change if we can get tariff certainty by the end of the summer and a rate cut by September,” she said.
