A shockingly soft labor report reignited Wall Street's recession fears, but Corporate America might be telling an entirely different story—one that shows signs of strength not seen in years.
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The July nonfarm payrolls report came in far below expectations. The U.S. economy added just 73,000 jobs, while private payrolls rose 83,000—both short of Wall Street’s already-muted forecasts of 110,000 and 100,000, respectively.
Making matters worse, prior months saw a downward revision of 258,000 jobs, marking the largest two-month revision since 1968, excluding recessions, according to Goldman Sachs economist Jan Hatzius.
The unemployment rate ticked up to 4.2%, adding to fears that the labor market may have stalled in May and June.
Hatzius said this latest data aligns payroll numbers with other big-data indicators, marking “a confirmation that growth has slowed in recent months”
Is the Labor Market Really Signaling a Recession?
Not everyone agrees this is a recessionary signal.
"Friday's jobs report was terrible with recessionary level numbers, but slowing hiring is not new and markets are already looking past it," said Robert Ruggirello, CIO at Brave Eagle Wealth Management. He added that companies are freezing hiring, not firing, while waiting for clearer policy signals.
Bank of America economist Aditya Bhave offered a more structural take, saying markets are confusing recession with stagflation.
According to Bhave, labor supply is artificially constrained—foreign-born labor has dropped by 802,000 since April amid President Donald Trump‘s anti-immigration policies, and labor slack hasn't widened.
He noted that both the unemployment rate and the vacancy-to-unemployment ratio have remained flat for a year, while wages and labor income growth have remained robust.
Even the scary-sounding downward revisions may be overstated. Bhave highlighted that more than half were due to seasonal adjustments and declines in public-sector jobs. Private payrolls on a non-seasonally adjusted basis were revised down by a less alarming 114,000.
Ed Yardeni, President of Yardeni Research, also indicated the weakness is more about labor supply, not demand.
He highlighted that hours worked are at record highs, real wages are growing, and there's little evidence of mass layoffs.
"Yes, firms are pausing hiring, but they're not cutting," he said, adding that third-quarter GDP, as calculated by the Atlanta Fed model, is still tracking at 2.1%, with consumer spending up 1.6%.
Corporate America Paints A Healthy Picture
While labor market fears dominate headlines, earnings season is quietly crushing expectations.
According to FactSet Research, with 66% of S&P 500 companies having reported second-quarter 2025 earnings, 82% beat EPS estimates, well above the 5-year average of 78% and the 10-year average of 75%.
If this trend holds, it will be the best beat rate since the third quarter of 2021.
On the revenue side, 79% of companies beat forecasts, surpassing the 5-year average of 70% and the 10-year average of 64%, the strongest figure since the second quarter of 2021.
John Butters, senior earnings analyst at FactSet, said both the frequency and magnitude of earnings surprises are above their 10-year averages.
Mega-cap tech, in particular, is carrying the season. Goldman Sachs analyst David Kostin said the Magnificent 7 saw 26% year-over-year earnings growth, compared to just 4% for the rest of the S&P 500.
That 22-point spread is far wider than the 14-point gap predicted at the start of earnings season, indicating that mega-cap tech giants crushed expectations last quarter, with Nvidia Corp. (NASDAQ:NVDA) still slated to report results at the end of the month.
Bottom Line: Labor Looks Weak, But The Economy Doesn't
July's jobs report was undeniably soft, and the revisions raise eyebrows.
But strong corporate earnings, robust consumer spending and no uptick in layoffs suggest that Corporate America doesn't believe a recession is imminent—and maybe the market shouldn't either.
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Photo by Dilok Klaisataporn via Shutterstock
