On the Eve of Non-Farm Employment Report, US Labor Market Shows Weakness: Companies Cut Hiring but Avoid Layoffs!

The US labor market continues to maintain a pattern of "low hiring, low layoffs."

According to reports, the market expects the July Non-Farm Employment report, to be released this Friday, to show that US Non-Farm Employment increased by approximately 83,000 in July, with the unemployment rate holding steady at 4.2%. Although job growth has slowed significantly, layoffs remain rare, and there are no clear signs of significant deterioration in the labor market.

For the market, the importance of this report lies more in verifying the pace of economic cooling rather than changing expectations for Federal Reserve policy. Fed Chair Kevin Warsh described the labor market as "stable" last week, and most economists believe that inflation trends, rather than employment data, will remain the key variable determining the direction of monetary policy.

Hiring Continues to Slow as Companies Enter a Cautious Phase

The US job market showed signs of recovery earlier this spring, with Non-Farm Employment increasing by 214,000 in March, but the expansion momentum quickly slowed thereafter.

According to MarketWatch, escalating tensions in the Middle East have led to higher oil prices and increased operating costs for businesses, prompting many companies to tighten hiring plans and prioritize controlling labor expenses. Meanwhile, the Trump administration's tightening of immigration policies has reduced the available labor pool, further limiting corporate workforce expansion.

As summer progressed, the number of job openings continued to decline, with multiple labor market indicators showing that hiring activity is stagnating. Currently, most companies are only filling positions when key roles become vacant, rather than actively expanding their hiring scale.

Layoffs Remain Low, Resilience Persists in the Labor Market

The cooling in hiring has not evolved into large-scale layoffs.

At the end of July, initial claims for unemployment benefits in the US (not seasonally adjusted) fell to approximately 175,000, one of the lowest levels in nearly 60 years. The unemployment rate dropped to 4.2% in June, and the market expects it to remain at this level in July.

Nela Richardson, Chief Economist at ADP, stated that labor costs are not currently the main driver of inflation. Year-over-year wage growth for workers is around 3.5%, having returned to pre-pandemic levels; the market expects average hourly earnings to rise by 0.3% month-over-month in July, with the year-over-year growth rate remaining at 3.5%.

Many companies remain reluctant to lay off employees easily, largely because skilled labor is still in short supply, and the cost of rehiring after laying off staff remains high.

Healthcare Sector Remains the Primary Source of Job Growth

From an industry structure perspective, US job growth remains heavily dependent on the healthcare sector.

Since 2026, hospitals, clinics, and other medical service providers have contributed more than half of all new jobs nationwide, and this pattern is expected to continue in July.

Unlike periods of economic expansion when most industries simultaneously increased hiring, current job growth is more concentrated in a few sectors, reflecting that overall corporate demand for labor remains relatively cautious.