BURSTDark clouds formed over President Trump’s economy Friday after the July jobs report showed the labor market only gaining 106,000 jobs over the last three months.
The report from the Bureau of Labor Statistics (BLS) suggested the economy and labor market are much weaker than previously thought, and will raise questions about whether the president’s tariff regime is keeping businesses from hiring.
The combination of the dismal jobs report and rising inflation also raises disturbing questions about whether the economy is in stagflation, where unemployment rises with prices.
Trump’s response to the report was furious: He fired BLS commissioner Erika McEntarfer, accusing her, without evidence, of politicizing previous BLS reports in the run-up to last year’s presidential election.
In doing so, Trump cast doubt on whether future jobs reports, which are analyzed carefully around the world for signals about the U.S. economy, will be politicized and inaccurate.
Markets reacted dismally to the news, marking their worst day drop since May. The Dow Jones Industrial Average dropped 542 points to finish down 1.2 percent on the day. The S&P 500 lost 1.6 percent of its value, and the tech-heavy Nasdaq Composite fell 2.3 percent.
The president fumed over the poor economic news this week, posting on Truth Social that “today’s Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad” and telling reporters “we need someone honest” at BLS.
The economy added 73,000 jobs in July, well below economists’ expectations of around 100,000.
More significant were the massive downward revisions over the past two months. The economy added just 14,000 jobs in June, after the number was initially reported as 147,000. Only 19,000 jobs were added in May after initially being reported as 144,000. The combined revisions showed 258,000 fewer jobs in the economy.
The Labor Department described the revisions as abnormally large in their monthly release. Asked why they were so big, a representative for the department told The Hill that new information had come in and pointed to employment levels in the state and local government education sectors.
Trump’s response to fire the head of BLS raised major red flags from economists.
“This is awful. Reliable economic data is a key strength of the US economy,” Harvard economist Jason Furman, who chaired former President Obama's White House Council of Economic Advisers (CEA) wrote in a commentary. “I don't think Trump will be able to fake the data given the procedures. But there is now a risk, plus an awful appearance.”
White House economists admitted the numbers were bad, while pointing to “anomalous factors” related to seasonal adjustments.
“This jobs report isn’t ideal. There’s no way around that,” White House Council of Economic Advisers chief Stephen Miran told CNN Friday. “The downward revisions reflect a couple of anomalous factors … about 60 percent of the downward revision is due to quirks of the seasonal adjustment process.
Harvard economist Jeffrey Frankel, a former member of the National Bureau of Economic Research’s business cycle dating committee, told The Hill that the previously reported jobs numbers stood out to him more than the revised numbers, which he said make more sense in the context of tariffs and a broader slowdown.
“The consistently strong numbers that we thought we had previously were the anomaly,” he said.
Market participants expressed similar sentiments throughout the day.
Zacks Investment Research senior market analyst Mark Vicker said the labor market is looking “much weaker… than we knew yesterday.”
The White House has been leaning on Trump’s tariff plan as a policy that will turn around the U.S. economy and create revenue and jobs for the country.
Trump on Thursday signed an executive order that will modify tariff rates for dozens of trading partners starting Aug. 7 — pushed back from Aug. 1 and July 9 previously — and ranging from 41 percent to 10 percent imposed on imports.
The overall U.S. tariff level is now around 17 to 18 percent, according to various estimates.
Some nations had negotiated trade agreements to lock in tariff rates, like 19 percent for Indonesia and Thailand and 15 percent for South Korea, Japan and the European Union. Others face a higher rate, like Canada with 35 percent and Brazil with 50 percent.
Aside from the jobs numbers revealing a struggling economy, skeptics of the president’s tariff plan already predicted this year will be one of “pain” for the U.S. consumer, with companies passing off the cost of high tariffs to customers.
“That, in and of itself, is a recipe for slower economic growth and higher prices, and that’s what he’s got. So they did this, and we have been promised that it’s going to be worth it. We should put up with this pain because we’re going to get new steel mills and new aluminum factories,” said Douglas Holtz-Eakin, president of the center-right American Action Forum. “It takes years for any of that to happen, so all you’re gonna get for this year is the pain.”
The messaging out of the White House to pitch the president’s aggressive tariff policy has been that more goods can be made in the U.S., minimizing the dependency on foreign goods.
But, the jobs report on Friday showed the manufacturing sector lost 11,000 jobs in July after shedding 15,000 in June.
“We’re certainly not seeing a manufacturing renaissance. At this point, the data is showing the opposite,” Monica Gorman, former special assistant to President Biden for manufacturing and industrial policy, told The Hill.
Trump also lashed out again Friday at Federal Reserve Chair Jerome Powell, urging the central bank board to wrest control from him. Such a move could dramatically shake markets after just the idea of Trump moving to fire Powell earlier this month caused stocks to dip.
The Fed voted on Wednesday to keep short-term interest rates at a level of 4.25 percent to 4.5 percent, but that vote included the first double dissent from Fed board officials in more than 30 years.
Trump leaned on the dissents, calling Powell “stubborn” and saying “the board should assume control” after months of the president calling for Powell to resign and flirting with moving to remove him.
“What the president is essentially saying is, ignore the fact that I’m raising every price in the economy. Don’t worry about that. Cut rates and save the jobs. But he wasn’t elected to have higher prices so he can’t say that. So he’s just beating up on Powell,” Holtz-Eakin said.
Many forecasters predicted on Friday that the Fed will move to cut rates sooner given the newly apparent weakness in the job market.
“Today’s figures should be a bombshell for Fed Chair Jerome Powell, who called the labor market ‘solid’ in the post-FOMC meeting press conference this week,” Preston Caldwell, U.S. economist at Morningstar, wrote Friday.
Futures markets show an 80 percent chance of a rate cut at the Fed’s next meeting in September.
Aside from tariffs, the economy is in the middle of a gradual slowdown that’s been going on since the soaring recovery from the coronavirus pandemic, which was bolstered by trillions in fiscal stimulus that’s taken years to filter through the economy.
The Friday jobs report suggests that the moderation in conditions could be further along than previously known.
“We’re seeing a slowdown in the economy,” Gorman said. “Whether that turns into a recession I think is too early to predict.”
Gross domestic product grew by 2.9 percent in 2023, and by 2.5 percent in the first half of last year. In the first half of this year, it grew by just 1.2 percent.
On top of that, prices are also starting to rise from tariffs, creating potential stagflation. Prices from personal consumption rose to a 2.6-percent annual increase in June, while the Labor Department’s consumer price index rose to a 2.7 percent annual increase.
Businesses are sounding increasingly worried about normalizing the new U.S. tariff levels.
“Institutionalizing the highest U.S. duties since the Great Depression, coupled with ongoing uncertainty, will ultimately make American businesses less competitive globally and consumers worse off,” the National Foreign Trade Council, a trade group, said in a Friday statement.