What the July Jobs Report Really Tells Us

The July jobs report is making headlines as “dismal” or “a sharp slowdown,” and some say it is a sign that the labor market is “hitting stall speed.” On a headline basis, the July report showed that just 73,000 jobs were added in July, while the May and June totals were revised downward by a combined 258,000 jobs. The unemployment rate rose from 4.1% to 4.2%. These numbers led President Trump to fire Bureau of Labor Statistics Commissioner Erika McEntarfer.  

What the jobs data actually depicts is not the dismal portrayal that headlines are pushing; it shows that the labor market has weakened somewhat.  

Unlike the headlines, ITR Economics evaluates data on a not-seasonally-adjusted (“NSA”) basis, as we have written about extensively in the past. NSA employment data is more accurate and less subject to revisions than its seasonally-adjusted counterpart. Additionally, ITR Economics prefers to analyze the non-farm private sector labor market, instead of the July headline numbers that include both non-farm private and government employment. In July, the government component accounted for a loss of 12,000 jobs.  

On a private sector, NSA basis: 

• The rise in quarterly Employment is up 1.9% from March to July, a slightly weaker-than-normal increase similar to the increases seen in 1991 (1.7%), 2002 (1.9%), 2003 (2.0%), 2023 (2.2%), and 2024 (2.1%) — years that we saw Real GDP grow between 1.2% and 4.3%.
  
  
• July employment is up 1.0% from last July. The year-over-year change in employment has been running between 1.0% and 1.3% since January 2024. This result is within the range of normalcy. 
  
  
• The number of people employed in July is at a record high. 

In addition, looking at the relationship between unemployed workers and job openings reveals that, in aggregate, labor market supply and demand is in balance. In June (latest available data), there were 1.04 unemployed workers for each available job opening. The unemployment rate remains low at just 4.2%. Given high uncertainty, businesses are hesitating to add to their headcounts. On the other side of the equation, demographic trends are yielding relatively fewer available workers. Therefore, although the absolute numbers are low on both sides — job seekers and job openings — the overall balance is not skewed to one side or the other. 

Furthermore, it is critical to note that the headline jobs report number is a measure of new jobs created, not of overall employment levels. In the near term, the number of jobs being filled from one month to the next will be consistently lower than normal due to net negative immigration limiting labor availability. 

Finally, we remind our clients that the labor market is a lagging indicator, not a leading one. Softer employment growth now is to be expected given slowing Real GDP growth in prior quarters.

Although the July jobs report is not great news, it is a signal of the labor market experiencing slowing growth, not freefall. Stay the course and do not overreact to a single data point.