US economy meltdown as job market slumps by 42k and Trump's tariffs kick in

The latest US job market figures have rung alarm bells as the consequences of Donald Trump's erratic trade tariffs begin to bite. In a report published on Friday by the country's Labor Department, US employers added just 73,000 jobs in July, 42,000 short of the 115,000 expected.

Revised figures also shaved a shocking 258,000 jobs off payrolls for May and June. The unemployment rate also increased to 4.2% as Americans dropped out of the labour force and the ranks of the unemployed rose by 221,000. Daniel Zhao, chief economist at Glassdoor, said: "We're finally in the eye of the hurricane. After months of warning signs, the July jobs report confirms that the slowdown isn't just approaching - it's here."

Scott Anderson, chief US economist at BMO Capital Markets, said a "notable" deterioration in US labour market conditions appears to be underway. He added: "We have been forecasting this since the tariff and trade war erupted this spring and more restrictive immigration restrictions were put in place. Overall, this report highlights the risk of a harder landing for the labour market."

The jobs report sounded alarm bells after economists had warned the rift between the US and its trading partners would begin to appear this summer. Mr Trump upended decades of US efforts to lower trade barriers between countries by imposing hefty import taxes on goods from almost every country on the planet.

He believes the levies will bring more manufacturing back to the US and raise money to pay for massive tax cuts which he signed into law on July 4. But mainstream economists have long warned the cost of the tariffs will be passed on to businesses and households.

Giant firms including Walmart, Procter & Gamble, Ford, Best Buy, Adidas, Nike, Mattel, Shein, Temu and Stanley Black & Decker, have all hiked prices due to the tariffs.

Economists at Goldman Sachs estimate that overseas exporters have absorbed just a fifth of the rising costs from tariffs, while Americans and US businesses have picked up the lion's share of the bill.

However, Mr Trump has doubled down on his trade tariffs. Overnight, he signed an executive order which set new tariffs on a wide swathe of US trading partners. They are due to come into effect on August 7.

Stocks slumped in the wakes of the jobs report and latest trade developments. The S&P 500 fell 1.5% and was on track for its biggest decline since late May. The index is also on track for a weekly loss, marking a sharp shift from last week's record-setting streak of gains.

The Dow Jones Industrial Average fell 486 points, or 1.1%. The Nasdaq composite fell 2%. The yield on the 10-year Treasury fell to 4.22% from 4.39% just before the hiring report was released in a big move for the bond market. Markets in Europe also tumbled in the wake of Mr Trump's overnight tariffs announcement.

Despite the bad news, Blerina Uruci, chief US economist for the broker T. Rowe Price, said the jobs data suggested the US could be past the worst, as hiring did pick up slightly in July from May and June's depressed levels. She said: "I'm not overly pessimistic on the US economy based on this morning's data."

The economist did warn though that she thinks hiring will remain muted in the coming months as the number of available workers remains limited due to reduced immigration and an ageing population.

Guy Berger, senior fellow at the Burning Glass Institute, which studies employment trends, said: "Because of immigration policy, labor supply growth has nearly ground to a halt."

Mr Trump sold the tariffs hikes as a way of boosting US manufacturing, but factories cut 11,000 jobs last month after shedding 15,000 in June and 11,000 in May. The federal government, where employment has been targeted by the Trump administration, shed 12,000 jobs. Jobs in administration and support fell by nearly 20,000.

Healthcare firms, however, added 55,400 jobs last month, accounting for 76% of the jobs added in July and offering another sign recent job gains are narrowly focused. The department originally reported state and local governments had added 64,000 education jobs in June. The revisions on Friday slashed those jobs to less than 10,000.

Those revisions also revealed the US economy has generated an average of just 85,000 jobs a month this year, barely half last year's average of 168,000 and well below an average 400,000 from 2021-2023 as the economy rebounded from COVID-19 lockdowns.

The weak jobs data makes it more likely that Mr Trump will get one thing he really wants - a cut in short-term interest rates by the Federal Reserve. Fed Chair Jerome Powell and other central bank officials have repeatedly pointed to a healthy job market as a reason they could take time to evaluate how Mr Trump's tariffs affect inflation and the broader economy.

Now that assessment has been undercut, piling more pressure on the Fed to reduce borrowing costs. Wall Street investors raised their expectations for a rate cut at the Fed's next meeting in September after the jobs report was released.

The Fed left its key interest rate unchanged for the fifth consecutive time on Wednesday. Mr Powell signalled little urgency to reduce rates anytime soon. Mr Trump sees a rate cuts as leading to stronger growth and lower debt servicing costs for the federal government and property buyers.

The president argues there is virtually no inflation despite the Fed's preferred measure running at an annual rate of 2.6%, slightly above the Fed's 2% target. He called on the Fed's board of governors to usurp Mr Powell's powers on Friday, criticising the central bank chief for not cutting rates.