Why Did US Non-Farm Employment Drop Sharply?
It was learned that a research report published by Guangda Securities shows that the cumulative downward revision of non-farm data for May and June was 258,000 people, with an additional 73,000 jobs added in July. Compared to the first quarter's average monthly increase in non-farm employment of over 100,000 people, the decrease is quite significant. The unemployment rate also rose compared to last month, reaching 4.2%. This indicates that US non-farm employment is weakening gradually, and the likelihood of the Federal Reserve restarting its interest rate cuts in the second half of the year increases.
Guangda Securities' main views are as follows:
Event: On August 1st, 2025, the US Department of Labor released the non-farm data for July: an additional 73,000 jobs were added, with a forecast of 110,000 and a previous value of 147,000 revised to 14,000; the unemployment rate was 4.2%, consistent with forecasts, but lower than last month's 4.1%; and average hourly wages rose 3.9% compared to the same period last year, consistent with forecasts, but higher than the previous value of 3.7% revised to 3.8%.
How to View the Downward Revision of June Non-Farm Data?
On one hand, the monthly adjustment of non-farm data is a normal behavior, and the downward revision in June was mainly due to government, leisure, and construction industries. On the other hand, this large downward revision reflects the impact of tariffs on the US economy, which may lead to a decrease in the accuracy of predictive models and an expansion of the gap between actual values and initial estimates.
June Non-Farm Data Downward Revision Reflects Tariffs' Impact on US Economy
Objectively speaking, May and June non-farm data were cumulatively downwardly revised by 258,000 people, with an additional 73,000 jobs added in July. Compared to the first quarter's average monthly increase in non-farm employment of over 100,000 people, the decrease is quite significant. The unemployment rate also rose compared to last month, reaching 4.2%, which indicates that US non-farm employment is weakening gradually, and the likelihood of the Federal Reserve restarting its interest rate cuts in the second half of the year increases.
New Non-Farm Employment Below Expectations; Financial Activities, Education, Healthcare, and Retail Industries Perform Steadily
(1) Financial activities, education, healthcare, and retail industries:
Financial activities added 15,000 jobs in July, higher than the previous value of -20,000. Education, healthcare, and retail industries each added 79,000, 16,000, and 6,000 jobs, respectively, higher than the previous values of -20,000, -14,000, and -14,000.
(2) Manufacturing:
The manufacturing sector's employment decreased for three consecutive months. This reflects insufficient business confidence and investment intentions.
Labor Participation Rate Decreases; Unemployment Rate Rises
In July, the labor participation rate was recorded at 62.2%, lower than the previous value of 62.3%. The middle-aged and young adult groups' employment intentions have noticeably weakened.
Unemployment Increases; Temporary Employment Decreases
The unemployment population increased by 221,000 people in July, driving the U3 unemployment rate (=(unemployment number/labor force number)) to 4.2%. From a structural perspective, temporary employment decreased by 12,200 people compared to last month, while permanent employment increased by 0 people.
This Time's June Non-Farm Data Downward Revision Reflects Tariffs' Impact on US Economy; the Direction of Interest Rate Cuts Remains Very Certain
Objectively speaking, May and June non-farm data were cumulatively downwardly revised by 258,000 people, with an additional 73,000 jobs added in July. Compared to the first quarter's average monthly increase in non-farm employment of over 100,000 people, the decrease is quite significant. The unemployment rate also rose compared to last month, reaching 4.2%, which indicates that US non-farm employment is weakening gradually, and the likelihood of the Federal Reserve restarting its interest rate cuts in the second half of the year increases.
Risk Warning: US economy may decline more sharply than expected; trade and geopolitical situations may evolve unexpectedly.