Non-farm "faking," cracks appearing in economic pillars, is the U.S. economy starting to struggle?

The economic data released last week showed some warning signs, confirming the concerns that U.S. corporate executives and consumers have had about the economic situation this year.

The non-farm payroll data released last Friday indicated that the current state of the U.S. labor market is much worse than previously reported. Inflation-adjusted consumer spending (which accounts for about two-thirds of U.S. economic activity) declined in the first half of this year, while the inflation indicator favored by the Federal Reserve rebounded in June.

According to the Zhitong Finance APP, Wells Fargo's senior economist Sarah House stated, "The U.S. economy is 'struggling to maintain its stability.' Businesses and consumers have been facing a series of abrupt changes in economic policy, rising inflation, and still somewhat tight monetary policy. The concerns about economic stagnation triggered by this combination have unfortunately begun to materialize."

The employment data released last Friday shocked the market, including revisions to previous data—downward adjustments of nearly 260,000 jobs for May and June—and overturned previous perceptions of a still robust labor market before summer. The average job growth over the past three months was only 35,000, the worst level since the pandemic.

This report from the U.S. Bureau of Labor Statistics raised questions about the Federal Reserve's recent decision to keep interest rates unchanged. Later on Friday, another surprising piece of news emerged: Federal Reserve Governor Christopher Waller would resign, providing Trump with an earlier-than-expected opportunity to appoint a policymaker aligned with his ideology (more aggressive rate cuts).

Impact on Businesses and Consumers

Many U.S. companies have paused investments and hiring as they try to figure out the impact of Trump's economic policies (primarily tariff policies). The real estate market has just experienced the worst spring selling season in 13 years. Consumers, burdened by rising debt, have reduced spending on non-essential items.

Gregory Daco, chief economist at EY-Parthenon, stated, "As prices rise, it becomes increasingly difficult for businesses and consumers to consume and invest, and this struggle is likely to continue."

That said, the U.S. economy is still expected to grow steadily, but at a pace lower than in recent years. According to the latest survey, forecasters expect the U.S. economy to grow by 1.5% this year and by 1.7% by 2026.

Many companies, from CMG.US to Procter & Gamble (PG.US), have noted that economic uncertainty is suppressing consumer demand. Procter & Gamble's Chief Financial Officer Andre Schulten stated during the company's quarterly earnings call, "We see consumer trends slowing down, not significantly, but we are seeing a clear slowdown trend in the U.S. The fluctuations consumers are experiencing, I believe, may not be entirely based on their current actual situation, but more on considerations of future expectations." At the same time, data from June showed that prices for some frequently imported goods (such as furniture and appliances) have risen, indicating that some companies are beginning to pass on the costs of higher tariffs to consumers. Even if the Trump administration reaches trade agreements with major trading partners, the tariff measures announced last week will further increase the average tax rate on U.S. imports. Many economists expect that import tariffs will push up prices in the coming months.

Federal Reserve officials are tasked with the dual mission of curbing inflation and maintaining low unemployment rates, and they now face greater pressure to lower interest rates before the economy cools too quickly.

Federal Reserve Chairman Jerome Powell pointed out at a press conference last Wednesday that there are downside risks in the labor market, but he still described it as "robust." He also mentioned the slowdown in consumer spending. Powell stated, "Consumer spending has been very strong over the past few years. Previous forecasters (including ourselves) have repeatedly predicted that spending would gradually slow down. Perhaps this situation is finally occurring."

Due to high housing prices and rising borrowing costs, the real estate market continues to be a drag on economic growth. In June, total spending on residential construction and non-residential projects fell by 2.9% compared to the same period last year, marking one of the most severe annual declines since early 2019.

Significant Downward Revision of Non-Farm Payrolls

Revisions to government data (such as employment figures) are common and usually do not attract much attention. However, the scale of the revisions released last Friday was substantial, showing that the number of new jobs added in May and June was 258,000 less than previously reported, shifting the employment market's status from robust growth to near stagnation. The yield on the U.S. 2-year Treasury note (which is closely related to the Federal Reserve's short-term interest rates) surged after the data was released, while the S&P 500 index fell sharply.

Equifax CEO Mark Begor stated during the earnings call on July 22, "When businesses feel uncertain about the future, they cut spending. The first area they cut spending is in hiring."

Although hiring activity has slowed, most companies have not laid off workers. Even though the unemployment rate rose to 4.2% in July, it remains at a relatively low level. However, this data highlights the increasingly severe predicament faced by unemployed individuals.

The decline in U.S. non-farm employment and the rise in unemployment rates will significantly suppress consumer spending, primarily because a weak job market directly undermines household income, especially for low-income groups that rely on wages, forcing them to cut back on non-essential consumption such as dining and entertainment; at the same time, declining consumer confidence will further suppress willingness to spend, creating a negative feedback loop of "reduced income—contraction in spending—deterioration of corporate profits—intensified layoffs."