Payrolls grew by just 73,000 last month, well below forecasts for about 100,000. Meanwhile, May’s tally was cut from 144,000 to 19,000, and June’s total was slashed from 147,000 to just 14,000, meaning the average gain over the past three months is now only 35,000.

To be sure, the weak jobs numbers do not mean there are mass layoffs. Other datasets like weekly jobless claims and monthly job-turnover surveys back that up. At the same time, wages and workweeks are still rising.

“But the comfort garnered from this news is dominated by a sharp hiring slowdown sending a stall speed alert,” JPMorgan economists wrote in a note late Friday.

In particular, hiring in the private sector has slowed to an average of just 52,000 in the last three months, with sectors outside health and education stagnating.

Coupled with the lack of any signs that unwanted separations are surging due to immigration policy, this is a strong signal that business demand for labor has cooled, they explained.

“We have consistently emphasized that a slide in labor demand of this magnitude is a recession warning signal,” JPMorgan added. “Firms normally maintain hiring gains through growth downshifts they perceive as transitory. In episodes when labor demand slides with a growth downshift, it is often a precursor to retrenchment.”

For now, the overall economic numbers still show expansion, albeit at a slower pace. GDP rebounded more robustly than expected in the second quarter, hitting 3%, though a metric that strips out the impact of foreign trade and looks instead at final domestic demand indicated slowing. And for the third quarter, the Atlanta Fed’s GDP tracker points to growth decelerating to 2.1%.

JPMorgan also warned the depressed pace of job growth is unlikely to sustain income gains or consumer confidence, which has bounced back in recent months.

Meanwhile, the broader U-6 gauge of unemployment—which includes people who haven’t looked for work recently but are still interested in finding a job as well as people who are involuntarily working part time and would prefer a full-time role—has climbed by 0.4 percentage points this year.

By contrast, the headline unemployment rate has barely changed, bouncing in a tight range between 4% and 4.2% for more than a year.

Until Friday’s shocker, that has helped give the impression that the job market has been resilient in the face of steep tariff hikes from President Donald Trump.

“We think job creation is no longer appropriately described as solid,” JPMorgan said. “Together with building drags from the trade war, this week’s news supports our view that the Fed is moving closer to easing.”

A separate note from JPMorgan also highlighted more details buried in the jobs report that suggest AI is having an impact on the labor market.

For example, payrolls at professional and business services firms have been trending lower and fell by 14,000 last month.

In addition, the unemployment rate for college-educated workers rose to 2.7% from 2.5%, while the overall unemployment rate ticked up to 4.2% from 4.1%.

“New entrants appear to have accounted for an unusually large share of the increase in the unemployed last month,” JPMorgan said.

That follows earlier alarms about the use of AI reducing the need for entry-level jobs, a critical stepping stone for recent college graduates looking to launch their careers.

But last month, top economist Brad DeLong argued in a recent essay that the challenges confronting young job-seekers today are primarily driven by widespread policy uncertainty and a sluggish economy—not by the rapid rise of AI tools.

Uncertainty causes companies to delay major decisions, including hiring, in the face of an unpredictable policy environment, which has been whipsawed by Trump’s on-again, off-again trade war. 

“This risk aversion is particularly damaging for those at the start of their careers, who rely on a steady flow of entry-level openings to get a foot in the door,” he wrote.