US job growth slows in July amid tariff uncertainty and labour market cooling

US job growth likely slowed in July as the labour market continued to cool under pressure from heightened trade tensions, restrictive monetary policy, and seasonal factors. Economists expect July 31’s employment report from the Labor Department to show nonfarm payrolls increased by around 110,000 to 115,000 jobs in July, down from 147,000 in June. The unemployment rate is forecast to tick up to 4.2 per cent from 4.1 per cent in June, maintaining a narrow range seen since May. Despite the anticipated rise, the labour market remains historically strong, though evidence is mounting that momentum is fading.

Federal Reserve Chair Jerome Powell, following the Fed’s recent decision to keep interest rates unchanged in the 4.25-4.50 per cent range, acknowledged signs of a slowing labour market but gave no clear indication of imminent rate cuts. “The July jobs report is unlikely to shake the Fed out of its 'wait-and-see' posture,” Gregory Daco, chief economist at EY-Parthenon, told Reuters. Markets have pushed back expectations for a rate cut from September to October or later.

Tariffs, hiring freezes, and seasonal distortions weigh on job gains

July’s modest job growth follows a June report that appeared stronger on the surface but was skewed by a surge in state and local government education jobs. That one-off seasonal factor likely reversed in July, economists say, dragging down overall payroll growth. Hiring has also been chilled by ongoing uncertainty around US President Donald Trump’s escalating trade wars. The White House imposed steep new tariffs, including a 35 per cent duty on Canadian goods, just ahead of a key trade deadline. Businesses, wary of rising input costs and future policy changes, have slowed hiring plans, particularly in the private sector.

Labour market still resilient, but cracks are showing

Recent data supports a picture of a gradually cooling labour market rather than a sharp downturn. The Job Openings and Labor Turnover Survey (JOLTS) showed job openings declined to 7.4 million in June, and the quits rate, a gauge of worker confidence, fell to its lowest since December. Initial jobless claims rose modestly last week to 218,000 but remain well within historical norms. Companies like Disney, Intel, and Starbucks have announced job cuts in recent months, but layoffs overall remain low. The labour` market continues to add jobs at a slower pace, averaging 130,000 per month this year, down from 168,000 in 2024 and sharply lower than the 400,000 monthly average during the post-Covid boom.

While the labour market is still considered strong, policymakers are closely watching upcoming data, including a major payrolls benchmark revision in September that could retroactively show weaker job growth. If that revision reveals significant weakness, some economists believe the Fed could be forced to reconsider rate cuts before year’s end.

(With inputs from agencies)