After months of steady hiring, the U.S. job market stumbled in July. Employers cut 23,000 jobs, according to data released by the Bureau of Labor Statistics on August 7.
The Bureau also revised May and June down by a combined 103,000. The slowdown was already underway before July arrived.
Government, leisure and hospitality, and retail led the losses. Private employers added 30,000 jobs for a second straight month, with most of the gains in healthcare and social assistance.
Local governments cut nearly 60,000 jobs, mostly in education. Those numbers are always noisy in the summer, since teachers leave payrolls before the school year starts.
Restaurants and bars trimmed staff as well, leaving leisure and hospitality employment at its lowest level in nearly a year. The FIFA World Cup ended on July 19, and the hiring bump many expected never showed up.
Microsoft, Uber and Visa all announced layoffs in July, and finance jobs hit a four-year low. The financial sector looks especially exposed to AI.
Manufacturing and construction kept adding jobs. Data-center construction may boost building demand in 2026, even as high interest rates hold homebuilding back.
The unemployment rate fell to 4.1%, but the drop happened for a less comfortable reason.
The share of adults working or actively looking for work, known as the labor-force participation rate, fell to 61.4%. Aside from the pandemic, the participation rate hasn't been this low since the 1970s.
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People who stop looking for work no longer count as unemployed, so the rate can fall even while payrolls shrink. A shrinking labor force, not a hiring boom, is what moved it.
Workers ages 25 to 54, the prime working years, saw only a small improvement. Their participation rate edged higher but stayed near recent lows.
Wage growth is cooling too. Average hourly pay climbed 3.2% year over year, as wage growth slowed.
The Federal Reserve has spent two years fighting inflation with high interest rates. This report gives it a reason to pause.
Investors lowered the odds of a September rate hike, and markets reacted right away. Equities rose at the opening bell and yields on Treasuries dropped.
Kathy Bostjancic of Nationwide said the weak report should lower the odds of a Fed rate hike, but she flagged the flip side: if inflation stays hot for a few more months, a rate hike becomes likely again.
Bloomberg Economics forecasts no change in interest rates when policymakers meet in September. Its economists argue that weak payrolls and higher layoffs matter more than the unemployment drop, which came from a shrinking labor force.
Not everyone is convinced. Stephen Stanley of Santander US Capital Markets said he doesn't buy it, arguing the numbers don't line up with what the broader labor market is showing.
The tiebreaker is next week's consumer price index, known as CPI. A cool report gives the Fed cover to stay quiet; hot inflation puts a hike back on the table.
For your money, the story here is mixed. The Fed's next move depends on inflation, and the next inflation report lands next week.
Other data this week told a brighter story. ADP Research found that pay gains for people who switched jobs hit a nearly one-year high in July.
The NFIB's small-business hiring plans gauge reached a nearly four-year high. Bank of America Institute also saw stronger pay and employment among lower-income households.
The official numbers are cooler.
High prices and the Iran war are keeping pressure on cost of living. Consumer sentiment improved last month, but views of current finances are still weak.
Next week's CPI report will help decide whether the Fed raises rates again. That decision flows straight into the cost of your mortgage, your car loan and your credit card balance.
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