Contentious July jobs report confirms the U.S. economy is slowing sharply. Heres why

Though it may have been controversial, the July jobs report helped confirm the notion that the U.S. economic engine is sputtering.

Nonfarm payrolls rose by just 73,000 for the month, below even the muted expectations. Heavy downward revisions to the May and June count took the three-month average job gains down to just 35,000, or less than one-third the pace for the same period a year ago.

Traditionally a lagging indicator when it comes to recessions, the weakness in job growth points to an economy that may be slowing even more than some of the traditional metrics are showing.

“We are in a broad economic slowdown. Whether it translates to a recession or not is the question that I'm asking now,” said Luke Tilley, chief economist at Wilmington Trust. “The labor market is key, and it's hard to gauge what's going to happen.”

Wilmington has a 50% chance the U.S. slides into recession. Tilley cites concerns over the longer-term hit from tariffs that could depress consumer spending, which drove 68% of all economic activity in the first quarter, as well as business investment and hiring.

In fact, he said pressure from tariffs is one of the reasons that the pass-through from President Donald Trump's levies hasn't hit inflation as hard as many economists expected.

“If consumers are shouldering the burden, they're spending more for imports and they will cut back on recreational spending, airlines, Disney trips, fun parks, hotels, all of that,” he said. “We've seen that in the data, and that's why there's not inflationary impact.”