Why is the labor market slowing down? Experts explain
One expert called the recent jobs data "abysmal."
The United States labor market slowed sharply over the summer, according to a recent jobs report from the U.S. Bureau of Labor Statistics.
Employers added an average of about 35,000 jobs over three months ending in July, which marks a major slowdown from roughly 128,000 jobs added monthly over the prior three months.
The hiring cooldown hit a wide swath of industries, including manufacturing and the federal government.
In a memo to clients, Callie Cox, chief market strategist at Ritholtz Wealth Management, called the new data "abysmal."
Hours after the release of the report on Friday, President Donald Trump fired BLS Commissioner Erika McEntarfer, a Joe Biden appointee who was confirmed by a bipartisan vote in the Senate in 2024.
In a social media post, Trump volleyed sharp criticism and baseless accusations at McEntarfer, claiming without evidence that the data had been "manipulated." The jobs report featured revisions of previous months' data, which is a routine practice.
"We need accurate Jobs Numbers. I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY. She will be replaced with someone much more competent and qualified," Trump said on Friday.
Analysts who spoke to ABC News attributed the labor market cooldown to three overlapping factors: the rollout of President Donald Trump's tariffs, the effects of restrictive immigration policy and job cuts among federal workers.
Here's why the labor market is slowing down, according to analysts:
Tariffs
In recent months, Trump has rolled out a slew of far-reaching tariffs on dozens of countries and some specific products, such as steel, aluminum and cars. As recently as Thursday, Trump unveiled fresh tariffs as high as 41% on nearly 70 countries.
In all, the new levies hiked the average effective tariff rate to 18.3%, the highest since 1934, the Yale Budget Lab said.
The fluctuating tariffs saddle companies with a high degree of uncertainty, casting doubt over where expenses will stand from one month to the next, Daniel Zhao, lead economist at job-listing platform Glassdoor, told ABC News.
"Businesses hate uncertainty and that has made it for the business community to go forward with hiring," Zhao said. "That's the largest economic headwind."
Stephen Miran, chair of the White House Council of Economic Advisers, blamed the weak performance in part on uncertainty tied to the fate of Trump's domestic spending legislation as well as the ultimate outcome of tariff policy. Congress passed Trump's spending measure earlier this month; more recently, Trump announced long-delayed reciprocal tariffs on Thursday.
"Both of those sources of uncertainty are resolved," Miran told reporters on Friday. "We expect things to get materially stronger from here, now that our policies are starting to sort into place."
Immigration policy
Some analysts who spoke to ABC News faulted immigration policy for a portion of the labor market slowdown.
The Trump administration has pursued a restrictive immigration policy that features the detention of undocumented immigrants at work sites and the revocation of Temporary Protected Status – a form of temporary legal status – for hundreds of thousands of immigrants.
The jobs report last week showed a drop-off of 1.7 million foreign-born workers from March to July, the non-partisan National Foundation for American Policy found. Over the past three decades, immigrants have accounted for more than half of U.S. workforce growth, the study said.
The decline in foreign-born workers makes it more difficult for employers to find and hire employees, hindering job market growth, Gregory Daco, chief economist at accounting firm EY, told ABC News.
"The U.S. economy is currently facing two historic supply shocks. One from trade policy and the other from immigration policy. Both of these shocks are now apparent in the latest labor market data," Daco said.
Federal job cuts
Job cuts in the federal government have also contributed to the labor market cooldown, some analysts said.
The federal government has shed 84,000 jobs since January, putting downward pressure on overall employment, BLS data on Friday showed.
The Department of Government Efficiency, a group initially co-led by Tesla CEO Elon Musk, spearheaded efforts to slash government spending and cut back jobs.
The rollback of federal employment isn't a primary driver of the sluggish job market, but the trend has exacerbated wider challenges, Zhao said.
"It's significant but not necessarily enough to flip the whole jobs market on its head," Zhao said. "That being said, this is an area where we might see the impact accumulate over time."
Popular Reads
ABC News Live