Can the Labor Market Continue to Support Consumption?

In a mid-July report, Bank of America stated that the persistently strong job market remained the core pillar sustaining robust U.S. spending. However, the labor market is now showing signs of slowing down.

The July employment report from the U.S. Bureau of Labor Statistics revealed that only 73,000 jobs were added nationwide, far below the market expectation of 104,000. The report also included significant downward revisions for May and June, cumulatively reducing job gains by 258,000. Notably, June’s initially strong figure of 147,000 jobs was revised sharply downward to a meager 14,000.

This trend is further reflected in the employment index of the ISM Services PMI, which contracted for the second consecutive month, dropping to 46.4—marking its fourth contraction in the past five months. Miller interpreted this as primarily reflecting slower hiring activity and stagnant job vacancy replenishment rather than large-scale layoffs. He added that the downward revisions to May and June employment data align with ISM’s employment surveys, suggesting continued weakness in job figures in the coming months.

Doug Peta, Chief U.S. Investment Strategist at BCA Research, noted during a seminar earlier this month that while the labor market also showed weakness in August last year, "the current situation differs significantly." He highlighted that since the first half of 2025, multiple industries—from consumer goods to air transport, restaurant chains to logistics—have reported widespread demand weakness. "Airlines like American and Southwest, which rely on domestic economy-class travel, are under pressure; Chipotle and Starbucks have seen declining same-store sales; McDonald’s reported reduced breakfast spending; and parcel delivery firms have underperformed expectations."

"This broad-based demand weakness has persisted for nearly six months since late February, unlike what we observed in August last year. Thus, current consumption data provides the confirmation signal for a recession that last year’s employment figures lacked," Peta stated.

Ryan Sweet, Chief U.S. Economist at Oxford Economics, added that whether tariff policies have triggered broader price transmission effects—driving up prices for goods and services not directly subject to tariffs—is a key question for the Federal Reserve. However, he believes the evidence remains inconclusive, and the ISM survey results are "unlikely to alter the Fed’s established policy path. Significant divergence remains over a potential September rate cut, with the final decision heavily dependent on the latest consumer price and labor market data."