July’s jobs report delivered a jolt to Wall Street, revealing a sudden slowdown in hiring and raising fears of a looming recession. The data showed payrolls increased by just 73,000—well short of the roughly 100,000 economists had expected. Even more alarming were the sharp downward revisions to prior months: May’s job gains were slashed from 144,000 to just 19,000, and June’s fell from 147,000 to 14,000. That leaves the three-month average at a mere 35,000 new jobs.
JPMorgan economists said the numbers point to a steep drop in labor demand—a classic recession warning. While there’s little evidence of mass layoffs, the pace of hiring has slowed dramatically, especially in the private sector, where job gains have averaged only 52,000 over the past three months. Sectors outside of healthcare and education are largely stagnant.
The bank noted that when companies pull back on hiring during periods of slower growth, it often signals they expect conditions to worsen. “We have consistently emphasized that a slide in labor demand of this magnitude is a recession warning signal,” JPMorgan wrote in a note Friday.
Despite the weak jobs data, wages and average workweeks are still climbing, and weekly jobless claims remain low. GDP growth also remains positive, with the economy expanding at a 3% annual rate in the second quarter. However, underlying measures of domestic demand suggest the pace is slowing, and the Atlanta Fed now projects third-quarter growth will cool to 2.1%. JPMorgan cautioned that such tepid job growth won’t sustain income gains or consumer confidence for long.
The unemployment rate held at 4.2%, barely changed from the 4%–4.2% range it has maintained for more than a year. But the broader U-6 measure, which captures underemployment and discouraged workers, has risen 0.4 percentage points this year.
The report also hinted at another emerging trend: the impact of artificial intelligence on the labor market. Professional and business services payrolls—where AI adoption is most visible—fell by 14,000 in July, and unemployment among college graduates ticked up to 2.7% from 2.5%. JPMorgan noted that new entrants to the workforce accounted for much of the increase in unemployment, echoing earlier warnings that AI could reduce the availability of entry-level jobs critical for recent grads.
Not everyone is convinced AI is the primary culprit. Economist Brad DeLong recently argued that young job seekers face more immediate challenges from an uncertain economic and policy environment than from automation. Trade tensions and other policy swings, he said, are causing firms to delay hiring and investment—a pattern that hits new entrants to the labor market hardest.
With job creation no longer “solid,” as JPMorgan put it, the weak labor data combined with trade headwinds could push the Federal Reserve closer to cutting interest rates.