The U.S. economy added fewer jobs than expected in July. Still, solid wage gains and a declining unemployment rate back to 3.5% indicated continued tightness in labor market conditions. The Labor Department’s employment report on Friday also showed job gains in May and June were revised lower, potentially suggesting demand for labor was slowing in the wake of the Federal Reserve’s hefty interest rate hikes this year.
The unemployment rate fell to a near-record low of 3.5%, the lowest since June 2021, as more people joined the workforce while those who dropped out re-entered the labor force. The economy needs to add about 239,000 new jobs each month to keep up with growth in the working-age population.
Pay growth has started to slow, although other indicators remain strong. The number of job openings has been flat for the past three months and is down from a record high of more than 12 million one year ago, according to data from the Bureau of Labor Statistics. Meanwhile, average compensation growth—which includes wages, salaries, and benefits—declined in January to a three-month low but remains higher than any pre-pandemic point in recent history.
Wages were up 4.4% year-over-year in July, a tad slower than in June but still far above the Fed’s goal of keeping inflation close to its 2% target. The softening in wage growth could ease some of the pressure on the economy to keep growing faster, though it’s too early to say that is for sure.
Traders on Wall Street welcomed the mixed jobs report, with stocks rising after the release. The broader S&P 500 index was up 0.6 percent at midday, and the tech-heavy Nasdaq Composite gained 0.9%.
In his statement accompanying the report’s release, President Donald Trump praised the solid economic news but warned that the “floodgates of disaster” still flow from abroad. He urged Congress to pass his budget proposal, which includes $4.7 trillion in spending cuts over ten years, and he reiterated his call for a border wall that Mexico will pay for.
The president’s comments echoed earlier remarks by Fed chair Janet Yellen, who pushed back against the idea of a recession and said the labor market remained strong even after the stock market’s summer meltdown. She also cited that the construction industry is resurgent and that more young adults are starting to join the workforce after graduating college. But she acknowledged that the weakening global economy and the pandemic’s impact had slowed the hiring pace in some areas. She said That will likely continue as the economy shifts into a more mature stage. The Fed is expected to raise rates again in October, but it has indicated that the timing of any future rate hikes will be data-dependent. That could depend on whether the economy can quickly move past the weakness in Europe and other emerging economies and how much further the housing market cools.