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Just two days after Fed Chair Jerome Powell refused to pre-commit to a September rate cut, the U.S. labor market did it for him.
A weak July jobs report and the biggest downward 2-month revisions since 2020 have economists—and markets—racing to President Donald Trump‘s side on calling for lower interest rates.
The U.S. economy added just 73,000 jobs in July, far below the 110,000 expected.
But the real shock came from the Bureau of Labor Statistics revising May and June non-farm payrolls down by a combined 258,000—erasing what were thought to be solid job gains. This is the largest two-month revision since the COVID-19 shock in 2020.
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Private-sector job growth was narrowly concentrated, driven largely by healthcare, while government payrolls fell by 10,000. The unemployment rate edged up to 4.2%, reversing June’s drop.
Wages, however, remained hot. Average hourly earnings rose 0.3% month-over-month and 3.9% year-over-year, both beating forecasts.
Still, signs of underlying weakness in the labor force—especially due to declining immigration—are mounting.
Meanwhile, U.S. manufacturing continues to struggle, signaling ongoing headwinds from tariff-driven uncertainty.
The ISM Manufacturing PMI decreased to 48 in July 2025, down from 49 in June and below the expected level of 49.5. It marked the fifth straight month of contraction and the lowest reading since October 2024.
Markets are now fully pricing in two rate cuts by December, with the chance of a September 25-basis-point cut surging to 76% Friday, more than double Thursday’s odds.
Oxford Economics’ Nancy Vanden Houten said the weak July report and historic revisions “raise the odds of a Fed rate cut in September.” She warned that slower labor force growth, especially among foreign-born workers, may mask deeper structural issues.
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“The foreign-born labor force has shrunk by 1.2 million in just six months,” she said, linking the decline to the Trump administration’s immigration policies.
