The labor market is not one number: July ’25 report reveals underlying weakness

The July employment report delivered a sobering picture of the U.S. labor market, with job growth falling well short of expectations and significant downward revisions to prior months revealing that the labor market is weaker than initially reported. While unemployment remained relatively stable, beneath the headline numbers lies a troubling story of stagnant job creation, rising long-term unemployment, and a labor market that appears to have lost momentum since spring. The Administration’s tariff and trade policies, along with reductions in the Federal workforce and immigration restrictions, are likely contributing to this month’s jobs report.

Headline numbers disappoint amid major revisions

The economy added 73,000 jobs in July, falling well below the 12-month average of 146,000 monthly gains and representing the weakest performance since the early stages of economic recovery. The unemployment rate edged up to 4.2 percent from 4.1 percent in June, reversing the previous month’s improvement and returning to levels last seen in May.

Perhaps more concerning than July’s weak performance were the massive downward revisions to recent months. May employment gains were slashed by 125,000, from 144,000 to just 19,000, while June was revised down by 133,000, from 147,000 to only 14,000. Combined, these revisions reduced reported job gains by 258,000 over two months, suggesting the labor market has essentially flatlined since April rather than maintaining steady growth as initially believed.

These unusually large revisions indicate that real-time employment data may be providing an overly optimistic view of labor market conditions, raising questions about the reliability of initial estimates during periods of economic transition.

Healthcare carries the load while government cuts continue

Healthcare remained the primary engine of job growth, adding 55,000 positions in July, above its 12-month average of 42,000 monthly gains. The sector’s growth was broad-based, with ambulatory healthcare services leading the way with 34,000 new jobs and hospitals contributing another 16,000. This continued strength reflects both demographic trends and ongoing healthcare infrastructure investments, providing a crucial foundation for overall employment growth.

Social assistance employment also showed resilience with 18,000 new jobs, primarily driven by individual and family services, which added 21,000 positions. This growth pattern suggests continued demand for support services, potentially reflecting ongoing economic pressures on American families navigating a challenging economic environment.

However, federal government employment continued its decline, losing another 12,000 positions in July. This brings total federal job losses to 84,000 since reaching a peak in January 2025, representing an accelerating workforce reduction that appears to be intensifying. While this trend aligns with broader government efficiency initiatives, it raises some questions about service delivery capacity and could create economic headwinds in regions with high concentrations of federal employment.

Notably, virtually all other major industries showed little to no change, indicating a labor market that has largely stagnated rather than contracted sharply. This stability across sectors suggests businesses are maintaining current workforce levels while exercising extreme caution about expansion.

Long-term unemployment continues troubling ascent

While the overall unemployment rate remained in the narrow 4.0-4.2 percent range it has occupied since May 2024, more troubling trends emerged beneath the surface. The number of people unemployed for 27 weeks or more increased by 179,000 to 1.8 million in July, continuing the upward trajectory that began in June. The long-term unemployed now represent 24.9 percent of all jobless Americans, nearly one in four, signaling potential structural challenges in the labor market.

This sustained rise in long-term unemployment is particularly worrying as it often indicates skills mismatches, geographic barriers to employment, or other factors that prevent efficient job matching. The trend warrants close monitoring as it can become self-reinforcing, with longer unemployment spells leading to further skill degradation and reduced employment prospects.

An important development was the surge in new entrants to the labor force, with 275,000 additional people looking for their first job, bringing the total to 985,000. This could reflect recent graduates entering the job market or people previously outside the workforce beginning job searches, but their success in finding employment will be crucial to monitor given the current weak hiring environment.

Labor force participation signals deeper concerns

The labor force participation rate declined slightly to 62.2 percent in July and has fallen by 0.5 percentage points over the past year, suggesting a growing number of working-age Americans are disconnecting from the workforce entirely. The employment-population ratio also edged down to 59.6 percent and is down 0.4 percentage points year-over-year, indicating fewer Americans are working relative to the total population.

These metrics continue to lag pre-pandemic levels significantly, with the participation rate still well below the 63.3 percent recorded in February 2020. The persistent gap suggests that labor market recovery remains fundamentally incomplete, with millions of potential workers remaining on the sidelines.

More concerning, the number of people not in the labor force who want a job held steady at 6.2 million but is up 568,000 over the year—a significant increase in sidelined workers who desire employment but haven’t actively searched recently. This growing pool of marginally attached workers represents a substantial reservoir of labor market slack that isn’t captured in headline unemployment figures.

However, there was some improvement in worker sentiment, with discouraged workers, those who have stopped looking because they believe no jobs are available decreasing by 212,000 to 425,000, largely offsetting June’s sharp increase. While this represents a positive development, the level remains elevated compared to historical norms.

Mixed signals on wages and hours

Average hourly earnings rose by 0.3 percent in July to $36.44, maintaining solid 3.9 percent year-over-year growth that slightly accelerated from June’s 3.7 percent annual pace. This wage growth continues to outpace inflation, suggesting real wage improvements for American workers, though the acceleration could reflect composition effects as lower-wage positions disappear faster than higher-wage jobs.

Working hours provided some modest positive news, with the average workweek for private nonfarm employees improving by 0.1 hour to 34.3 hours, reversing June’s decline. Production and nonsupervisory employees, roughly 80 percent of the workforce, also saw their workweek increase by 0.1 hour to 33.7 hours. This modest improvement in hours worked provides some support for worker earnings, though the levels remain below pre-pandemic norms.

The increase in part-time employment for economic reasons, from 4.5 million to 4.7 million, suggests some employers may be managing labor costs through hour reduction rather than outright layoffs, a pattern often seen during periods of economic uncertainty.

Demographic disparities persist across groups

The labor market continued to show significant disparities across demographic groups, though most rates remained relatively stable. Black workers maintained the highest unemployment rate at 7.2 percent, nearly double the 3.7 percent rate for both White workers and adult women. Adult men held steady at 4.0 percent, while Asian unemployment rose slightly to 3.9 percent and Hispanic unemployment remained at 5.0 percent.

Teen unemployment increased to 15.2 percent, reflecting the particular challenges young workers face in securing employment during periods of economic softness. These persistent disparities highlight the uneven nature of labor market conditions and suggest that targeted interventions may be needed to ensure broader-based economic improvement.

Looking forward: Warning signs multiply

The July employment report presents a labor market that has clearly lost momentum, with the combination of weak job growth, massive downward revisions, and rising long-term unemployment painting a troubling picture of underlying economic softness. The stagnation evident since April suggests the labor market may be entering a more challenging phase that could signal broader economic headwinds ahead.

Key metrics to monitor in coming months include:

Revision patterns: The unusually large downward revisions to May and June raise questions about the reliability of initial employment estimates and suggest the labor market may be weaker in real-time than headline figures indicate.

Long-term unemployment trajectory: The continued increase in Americans jobless for six months or more represents a structural challenge that could become self-reinforcing if not addressed through targeted policy interventions.

Federal workforce reductions: The accelerating pace of federal job losses, 84,000 since January, will have multiplier effects on local economies and may signal broader fiscal policy impacts on employment.

Labor force participation trends: The year-over-year decline in participation rates and the growing number of Americans who want work but remain outside the labor force suggest deeper structural challenges in connecting workers to opportunities.

Sectoral concentration: The heavy reliance on healthcare for job growth, while other sectors remain stagnant, raises questions about the bre