JULY JOBS REPORT: LABOR MARKET HOLDS STEADY AS TRADE UNCERTAINTY BUILDS

By Bernard E. Anderson, Ph.D.
Whitney M. Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania
Senior Economic Advisor, National Urban League

The July employment situation report, released a day early due to the Independence Day holiday, confirms that the U.S. labor market remains stable, though it continues to reflect signs of deceleration amid a clouded economic outlook. Unemployment remains low, and layoffs are modest, yet the momentum in hiring is slowing as businesses contend with persistent policy uncertainty and the looming expiration of a critical tariff pause.

As of early summer, the macroeconomy remains reasonably strong. Inflation continues to hover just above the Federal Reserve’s 2 percent target, and while upward price pressures from tariffs have not yet taken full effect, their influence is expected to become more apparent in the coming months. According to recent data, U.S. import prices rose by 0.2 percent between May 2024 and May 2025—an early indicator of shifting cost structures.

President Trump’s decision to delay the implementation of sweeping tariffs for 90 days, allowing space for new trade negotiations, is set to expire this month. That pause has triggered a strategic response from businesses, many of which moved quickly to increase inventories and stockpile imported production materials. While such actions may help mitigate short-term price hikes, they have also depressed domestic economic activity in the second quarter by boosting imports, which subtract from GDP in national accounting.

Though there is no immediate evidence of labor market disruption, broader signals indicate that tightness in the market has eased. The ratio of job openings to unemployed workers has now settled at 1:1—a significant shift from the conditions of 2022 and early 2023, when employers struggled to find available labor.

At the same time, targeted immigration enforcement has introduced new pressures in key labor-intensive sectors. Ongoing ICE deportation actions—particularly in agriculture—are expected to raise the price of fruits and vegetables in the months ahead. This sector, already reliant on a fragile supply of seasonal labor, may see both productivity declines and cost increases if the labor supply is further constrained.

As these dynamics unfold, the Federal Reserve remains firmly in the spotlight. The Federal Open Market Committee (FOMC) has held interest rates steady at 4.25 to 4.50 percent in its last two meetings, opting for caution amid a complex and uncertain outlook. While vigorous debate has taken place among members, decisions have thus far been unanimous in favor of keeping rates unchanged.

The Fed has retired the language of “transitory inflation,” signaling a more grounded recognition that prices are not likely to fall back quickly even if inflation moderates. Instead, it has turned to a strategy of careful communication—explaining its policy stance in the context of its dual mandate to promote maximum employment and stable prices. Future decisions will hinge on a broad set of indicators, including inflation trends, labor market conditions, and survey data—especially consumer confidence readings from the University of Michigan and the regional Beige Book reports.

Looking ahead, the trajectory of trade negotiations and the fate of tariffs will significantly shape the path of inflation, consumer spending, and overall growth. If current tariff threats give way to mutual agreements that reduce trade barriers, inflationary pressure may subside and consumer confidence could improve. But if elevated import taxes remain in place for a prolonged period, consumers may pull back, and the threat of stagflation—slower growth coupled with persistent price increases—will rise.

In sum, the labor market remains a source of resilience in the U.S. economy, but its strength cannot be taken for granted. Trade uncertainty, policy shifts, and global realignments continue to shape the economic landscape in unpredictable ways. Policymakers must exercise prudence, transparency, and flexibility to navigate this challenging moment and sustain a recovery that reaches all corners of the American workforce.