CIO Insight: Déjà Vu in July Data?

This year’s weak July labor report echoes last year’s summer slowdown, which reversed in September and October data. Last year’s data head-fake significantly undercut the Federal Reserve’s rationale for delivering the first rate cut of 50 basis points in August 2024, ahead of the US election. We do not think 2025’s hiring slowdown will be reversed this Fall. A look under the hood at the data suggests a stiff challenge to the resilient labor market narrative, with meaningful cracks emerging. 

Following significant downward revisions to non-farm payrolls, job growth has slowed to approximately 35k per month, with gains concentrated in health care and government—highlighting fragility in broader employment. Immigration policy is masking what might otherwise be a rising unemployment rate. Demand for labor is falling but so is supply, which means there isn’t much labor slack being created. Persistent downward revisions (data for 80% of the past 18 months have been revised downward, as Figure 1 shows), the narrow breadth of job gains so far and declining labor supply on the back of immigration policies suggest this year’s softness may be more durable.

Figure 1: A tale of two labor markets: Job gains have not been as robust as initially believed 

3-month non-farm payroll (NFP) moving averages (k) pre and post revisions 

Source: L&G – Asset Management, America, Bureau of Labor Statistics, Deutsche Bank Research. Data as of August 11, 2025.

Beyond labor, recent ISM data also disappointed. Economists have long warned that the economic drag from tariffs would be delayed due to exemptions and inventory strategies. Recent data may mark the first signs of tariff effects materializing—ironically, just as markets and media begin to dismiss those risks.

Will confidence crack? If growth slows to roughly 1% amid a cooler labor market and rising inflation, nominal gross domestic product (GDP) near 4% could still support long-end yield and credit demand. But the near-term question is whether valuations adequately compensate for a less favorable growth / inflation mix. If investors belatedly recognize the economic drag from second-quarter tariffs, sentiment could shift—potentially triggering a wobble in risk assets.

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