Job Growth Hit the Brakes in July

U.S. employers added 114,000 new jobs in July, a significant slowdown from previous months, and the unemployment rate increased to 4.3%, the highest level since October 2021, according to the latest employment report from the U.S. Bureau of Labor Statistics.

Employment growth in July was well below the average of 215,000 over the past 12 months, and the jobs totals for May and June were revised down by a combined 29,000, all signs of a weakening labor market.

The report reinforces recent evidence that the labor market is cooling, especially given the notable uptick in unemployment and people working part time for economic reasons, said Justin Ladner, senior labor economist at SHRM.

“Although the labor market remains tight by historical standards and recent evidence suggests that competition for workers remains fierce, the U.S. labor market has almost certainly exited the overheated condition it has been in for years,” he said.

The report adds to mixed signals about the economy and underscores concerns that the labor market now poses as much of a risk to the economy as inflation, raising the likelihood of a September interest rate cut by the Federal Reserve.

“Yellow flags had started to pop up in the labor market data over the past few months, but now the flags are turning red and the ‘soft landing’ in the U.S. labor market is in danger,” said Nick Bunker, economic research director for North America for the Indeed Hiring Lab. “Whether we are in a recession or not is beside the point. Joblessness is on the rise, and there’s no sign that the trends leading to this are abating. In fact, there are signs that they could accelerate. The labor market is in a perilous spot.”

Most of the employment gains from the first quarter of the year have been lost, said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup North America.

“Our real-time data shows the number of new jobs and overall open jobs contracting, demonstrating continued softening as employers and employees sit tight,” she said. “We are seeing both sides play the ‘Great Waiting Game.’ Changing roles won’t offer workers the pay gains they saw post-pandemic, and employers are holding onto their talent.”

Sam Kuhn, an economist at Appcast, said that the labor market is rapidly shifting from tight to balanced as businesses have scaled back their appetite for hiring.

“As the Federal Reserve decided to keep interest rates at their current level, pressure will continue to mount to reduce rates in September to ease this softening labor market,” he added.

Industry Breakdown

July’s job gains were once again concentrated in the health care sector, which added 55,000 jobs, just under the average monthly gain of 63,000 over the prior 12 months. Employment in July continued to trend up in construction (25,000), leisure and hospitality (23,000), and transportation and warehousing (14,000).

“Labor markets in the private sector excluding health care have deteriorated rapidly and are now anemic,” said Julia Pollak, chief economist at ZipRecruiter. “More industries lost jobs than gained jobs. Notably, the information sector, professional and business services, and financial activities lost jobs. These sectors are known for creating higher-wage, higher-quality jobs.”

The information sector, which includes publishing, broadcasting, telecommunications, and technology roles, shed 20,000 jobs, the most of any sector.

“Health care and education have kept the labor market afloat for many months now,” Kuhn said.  “Outside of health care, construction is a surprising growth industry, weathering the storm of elevated interest rates.”

Frankiewicz pointed to a loosening in demand that is beginning to emerge. “All job functions are showing declines, but the cost-conscious consumer is still evident,” she said. “The summer’s top employers have stayed steady month to month with Walgreens, Lowe’s, CVS, and Walmart all in the top 25 as consumers prioritize health and value.”

Unemployment Spikes

Pollak noted that the unemployment rate rose to its highest mark since 2017 (outside the pandemic recession). An alternate measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons surged to 7.8%, the highest since October 2021.

Those facing long-term unemployment also ticked higher, topping 1.5 million, the most since February 2022. But the jump in the unemployment rate was partly driven by people looking for jobs, rather than people losing their jobs. The labor-force participation rate, the share of working-age people who were employed or seeking work, rose to 62.7% from 62.6% in June.

“The rise in unemployment will grab all the headlines today—and for good reason,” Bunker said. “We saw a continued rise in the rate at which employed workers moved to unemployment and a fall in the rate at which unemployed workers found jobs.”

Some of the increase in the unemployment rate was normalization from an unusual, unsustainable, and inflationary low, Pollak said.

“But the labor market is clearly no longer normalizing. Further deterioration could set off a negative cycle of job losses, consumer spending declines, business revenue declines, and more job cuts,” she said.

Wages Slow

Average hourly earnings were up 3.6% in July from a year earlier—above the pace of inflation, but the smallest gain since May 2021.

“Theoretically, wage growth should ideally compensate workers for inflation and reward workers for productivity growth,” Pollak said. “Far from receiving a wage boost, however, workers have seen wage growth slow. ZipRecruiter’s survey of recent hires also shows a decline in the share of newly hired workers getting raises, signing bonuses, and benefits.”