July jobs clunker reflects an economy muddling through tariff-related distortions

Executive Summary

U.S. payrolls rose by 73,000 in July, missing consensus expectations for 104,000. The major impact was the sharp downward revisions, which sliced 258,000 jobs from the previous two months’ tallies. The revisions hammered the six-month average down to a lackluster 81,000. Meanwhile, nearly half of the major industry groups lost jobs in July and the unemployment rate ticked up to 4.2%.

Yet, the details paint a different picture. For instance, about half of all the downward revisions, or 129,000, were government jobs. Additionally, private payroll growth surged to 83,000 in July after an anemic 3,000 in June, while wages and hours worked rose.

Alas, we believe this weakness is concrete evidence of the impact of tariffs, which are causing widespread distortions, such as huge swings in freight volumes as consumers and businesses attempt to sidestep tariffs. This keeps the Federal Reserve (Fed) in a bind with respect to near-term rate cuts, especially if the tariff-related distortions aren’t temporary and inflation pressures mount.