Wall Street strategists are sharply recalibrating their economic outlooks after Friday’s July jobs report showed weaker-than-expected hiring and staggering downward revisions to prior months’ data, suggesting the labor market may be losing steam at a quicker pace than previously thought.
The US economy added just 73,000 jobs in July, far below the 104,000 expected by economists. But the bigger surprise came from revisions to the May and June figures, which collectively erased 258,000 jobs. This marked the largest two-month downward revision since May 2020.
Sarah House, senior economist at Wells Fargo, called the July jobs report “a dud” in a client note titled “July and the No Good, Very Bad Jobs Report.”
“The ‘solid’ state of the labor market described by the FOMC earlier this week looks more questionable after the July employment report,” she said, citing broad-based hiring weakness in cyclically sensitive sectors like manufacturing, retail, and professional services.
Despite persistent strength in healthcare hiring, she added, “the pace [of job growth] has lurched lower to just 35K” over the past three months when factoring in revisions.
Steve Sosnick, chief strategist at Interactive Brokers, bluntly told Yahoo Finance that the July numbers were simply “not good. There’s no way to sugarcoat that. The two-month revision is just staggering. It basically wipes out two months of what we thought were healthy job gains.”
Citi economist Veronica Clark agreed, telling Yahoo Finance, “It’s not so much this July number, but the massive downward revisions to the June number that we had last month. … This definitely does look like a labor market that is weakening.”
Meanwhile, Heather Long, chief economist at Navy Federal Credit Union, called the report a “gamechanger” in a post on X, echoing others in saying “the labor market now looks a lot weaker than expected.”
The unemployment rate ticked up to 4.2% in July, in line with expectations and still near historic lows. But as Clark pointed out, “that happened despite the labor force participation rate falling more,” a shift some economists have linked to President Trump’s immigration crackdown.
Ahead of the report, there were growing concerns that increased deportations were reducing labor supply and keeping the jobless rate artificially low.
The revised data has added urgency to calls for rate cuts from the Federal Reserve, with market pricing shifting notably in the aftermath.
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“We still anticipate that the Fed starts to cut in September with consecutive cuts thereafter leading to about 100 basis points of cuts in total,” said Leslie Falcone, head of taxable fixed income strategy at UBS Global Wealth Management.
Falcone noted that while the Fed had already turned more cautious, the scale of the revisions surprised even the most dovish forecasters. “Some of these revisions are much more than what people expected. … I do think that this is a bit on the weaker side. And it does put cuts back on the table.”
Traders seem to agree. Following the report, the probability of a September rate cut surged to about 80%, up from just 38% the day prior, according to the CME FedWatch Tool.
Federal Reserve Chair Jerome Powell speaks during a news conference following the Federal Open Market Committee meeting on July 30 in Washington, D.C. (AP Photo/Manuel Balce Ceneta) ·ASSOCIATED PRESS
Earlier this week, Fed governors Michelle Bowman and Christopher Waller broke from the majority of FOMC officials, dissenting against the decision to hold interest rates steady after warning that the labor market was weaker than initial data had indicated.
That warning appeared prescient on Friday as markets tumbled following the report. The tech-heavy Nasdaq (^IXIC) fell over 2% by midmorning, the Dow (DOW) shed nearly 600 points, and the S&P 500 (^GSPC) dropped around 1.6%. Meanwhile, bond prices surged on increased rate cut bets, sending the yield on the 10-year Treasury (^TNX) down 11 basis points to around 4.2%.
Adding to labor market concerns, escalating trade tensions were also top of mind for investors as Trump hiked tariff rates on several US trading partners, including a surprise 39% tariff on Switzerland.
“The market had sort of put tariffs in the rearview mirror and assumed that the labor market was okay,” Sosnick said. “Well, both of those assumptions have been overturned quite dramatically this morning.”
The strategist warned markets appear to be entering a “reckoning period,” explaining, “We’re not seeing a lot of reflexive dip buying. … That, to me, tells me that the psychology, at least as of this particular moment, is a bit more tenuous than it was.”
Economists are sounding the alarm on a weakening labor market after July’s jobs report revealed sharp downward revisions (Reuters/Brian Snyder/File Photo) ·Reuters / Reuters
Correction: A previous version of this article misspelled Steve Sosnick’s name. We regret the error.
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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