The U.S. labor market faltered in July, adding just 73,000 jobs—far below expectations—and revising previous months’ estimates sharply downward.
Combined, May and June job gains were slashed by a staggering 258,000, erasing what had once been seen as moderate growth and signaling a potentially more fragile economy than previously understood.
July’s tepid gains mark the weakest monthly performance since late 2020, excluding periods of outright job losses. Economists say the downturn reflects both a collapse in hiring momentum and a growing impact from restrictive immigration and trade policies. The revisions to May and June, cutting them to just 19,000 and 14,000 new jobs respectively, are the steepest since the early days of the pandemic.
Markets reacted swiftly. The Dow Jones Industrial Average plunged over 600 points Friday morning, while the S&P 500 and Nasdaq fell 1.4% and 1.8%, respectively. Investors now widely expect the Federal Reserve to cut interest rates in September—odds rose to 85%, up from 38% the previous day.
A Blow to Statistical Independence: Trump Fires BLS Chief
The release of the disappointing jobs report triggered a political firestorm. President Donald Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer within hours of the data’s release, claiming—without evidence—that the numbers had been manipulated for political purposes.
McEntarfer, a career economist with more than two decades in public service, was replaced by longtime BLS official William Wiatrowski. The move drew sharp condemnation from economists and former officials who said it undermines the independence of U.S. statistical agencies.
“This sets a dangerous precedent,” said William Beach, McEntarfer’s Trump-appointed predecessor. Former Commerce Department official Jed Kolko called the firing “five-alarm intentional harm” to the integrity of federal economic data.
The BLS—widely considered the global gold standard in labor statistics—relies on monthly surveys from over 120,000 employers. While initial job numbers are estimates, they are revised as more complete data becomes available, a practice dating back to 1979. The massive downward revisions this summer have amplified scrutiny, but experts insist the transparency of the process is crucial, not a flaw.
Immigration Crackdowns Squeeze Labor Force and Employers
Beyond the headline numbers, the July report revealed structural weaknesses. The U.S. labor force shrank for the third consecutive month, an event not seen since 2011. The participation rate fell to 62.2%, its lowest since late 2022. Economists say much of the decline is tied to falling numbers of foreign-born workers—a direct consequence of the Trump administration’s immigration enforcement policies.
Since January, the foreign-born labor force has declined by roughly 735,000 people. The seasonally adjusted total labor force shrank by 364,000 during the same period. At the same time, U.S.-born participation has also dipped, from 62.1% to 61.8%, offering no evidence that reducing immigrant labor is bringing more domestic workers into the economy.
“These trends reflect the ripple effects of trade and immigration policies,” said Joe Brusuelas, chief economist at RSM US. “Employers, especially in healthcare and manufacturing, are paralyzed by uncertainty.”
Healthcare providers report acute staffing shortages. The end of the CHNV humanitarian parole program in June removed work authorization for over half a million workers from countries like Haiti and Venezuela. Legal uncertainty has also disrupted the pipeline for international students and refugees. Hospitals, already struggling to recruit, have lost access to critical staff including nurses, aides, and environmental services workers.
Research challenges the premise that restricting immigration boosts wages. A study by University of California economists found that increased immigration had a modest positive effect on wages for less-educated U.S.-born workers and no negative impact on college-educated Americans.
Yet, in a twist, wage growth in occupations with a high share of foreign-born workers—such as janitors and construction laborers—has slowed this year, contradicting assumptions that limiting labor supply would drive pay upward.
A Labor Market Losing Its Footing
Friday’s report exposes mounting fragilities in the U.S. labor market. July’s limited job gains were concentrated entirely in the healthcare sector, with other industries—especially manufacturing, construction, and hospitality—either flatlining or shrinking. Unemployment for Black Americans rose to 7.2%, a level not seen since 2021, often a bellwether for broader labor market downturns.
“The labor market is stalling out,” said Diane Swonk, chief economist at KPMG. “There was a three-legged stool holding it up—state and local government, leisure and hospitality, and healthcare. Now we’re down to one.”
As the labor force contracts and immigration policies continue to limit workforce growth, economists warn the U.S. risks drifting toward recession. The underlying weakness—masked for months by seasonal quirks and lagging data—is now coming into full view. Without a course correction, the July jobs report may not be an outlier, but a grim preview of what’s ahead.
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