WASHINGTON — The U.S. economy added fewer jobs than expected in July, while the unemployment rate ticked higher, signaling that the nation’s labor market may be cooling after more than a year of robust hiring.
According to the latest Bureau of Labor Statistics (BLS) report released Tuesday, employers added 142,000 jobs in July, well below economists’ forecasts of around 200,000. Meanwhile, the unemployment rate rose to 4.2 percent, up from 4 percent in June, marking the highest level since late 2021.
Key sectors show uneven performance
Hiring slowed across several key industries, with leisure and hospitality — a sector that drove much of the post-pandemic recovery — adding just 18,000 jobs. Construction and manufacturing also posted smaller-than-expected gains, while retail employment fell by 12,000.
Healthcare, however, continued to show resilience, adding more than 40,000 jobs last month. Professional and business services also saw modest growth.
“The labor market remains strong in many areas, but there are early signs of softening,” said Kathy Bostjancic, chief economist at Nationwide. “Employers are becoming more cautious as interest rates remain high and economic growth slows.”
Wage growth moderates
Average hourly earnings rose 0.3 percent in July and 3.8 percent compared with a year earlier, down from a 4.1 percent annual gain in June. Slower wage growth could ease concerns about inflation, but it also suggests workers may be losing some of their recent bargaining power.
Federal Reserve officials have closely monitored wage data as they weigh future interest rate moves. A softer labor market could give the central bank more room to consider rate cuts later this year if inflation continues to decline.
“The moderation in wages is welcome news from an inflation standpoint,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “But policymakers will be watching closely to ensure this doesn’t turn into a more significant slowdown in the broader economy.”
A balancing act for policymakers
The Federal Reserve raised interest rates aggressively between 2022 and 2024 in an effort to tame inflation, which hit a 40-year high following the pandemic and global supply chain disruptions. Inflation has since cooled, with the Consumer Price Index rising 2.7 percent in July from a year earlier, down from over 9 percent at its 2022 peak, according to the U.S. Department of Labor.
Still, higher borrowing costs have weighed on businesses and consumers alike, slowing demand for goods, housing, and credit. Analysts say the weaker jobs report could strengthen calls for the Fed to pivot toward supporting growth.
Political implications
The latest jobs numbers are likely to factor into the political debate as the 2026 midterm elections approach. President Joe Biden has frequently pointed to strong job growth as a sign of economic recovery under his administration, while critics argue that high prices and elevated interest rates are eroding household purchasing power.
In a statement Tuesday, the White House said the economy remains “fundamentally strong” but acknowledged that “more work remains to ensure every American benefits from growth.”
Republican lawmakers quickly seized on the data. “This is more evidence that Bidenomics isn’t working for everyday Americans,” House Speaker Mike Johnson said.
Outlook remains uncertain
Economists caution that one month of weaker hiring does not necessarily signal a downturn. The U.S. labor market has consistently surprised analysts in recent years, with job creation rebounding even in the face of headwinds.
However, many believe the coming months will be critical in determining whether July’s slowdown represents a blip or the start of a broader trend.
“The labor market is still in good shape overall, but cracks are starting to appear,” Bostjancic said. “The question is whether policymakers can engineer a soft landing, or whether the economy slips into something more painful.”
For millions of workers and businesses, the answer will shape not only their economic fortunes but also the political and social landscape heading into 2026.