US employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower, suggesting the labor market is weaker than previously thought after surprising strength earlier this year.
Payrolls Decline as Employment Landscape Shifts; Fed Rate Hike in Question
Nonfarm payrolls decreased 23,000 last month following a combined 103,000 downward revision to the May and June figures, Bureau of Labor Statistics data showed Friday. The unemployment rate fell to 4.1% as labor force participation continued to slide.
The report suggests the labor market may be starting to falter amid rising prices and uncertainty from the Iran war, even as resilient consumer demand has so far encouraged some employers to move forward with hiring plans. The data could also prompt the Federal Reserve to delay interest-rate increases as officials weigh inflation against risks to employment.
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Unexpected Job Cuts in July Raise Concerns over US Economic Stability and Wages
US stock futures rose and Treasury yields fell as investors reduced bets on a Fed rate hike in September.
The decline in payrolls was driven by cuts in government, leisure and hospitality and retail trade. Private-sector payrolls rose by 30,000 for a second month, led by healthcare and social assistance.
Local government employers shed nearly 60,000 jobs, almost entirely in education, which can be volatile in the summer as many teachers fall off of payrolls before returning again as the school year begins. Federal government payrolls also fell.
Leisure and hospitality employment declined to the lowest level in almost a year as restaurants and bars shed staff, suggesting the FIFA World Cup that ended July 19 didn’t provide the boost to payrolls many forecasters had anticipated.
Payrolls in the financial activities sector, a key employer of white-collar workers seen as among the most vulnerable to artificial intelligence adoption, fell to the lowest level in four years.
Manufacturing and construction payrolls, however, continued to climb. Many economists have pointed to the data-center buildout as a possible driver of demand for construction labor in 2026, even as homebuilding continues to be restrained by high interest rates.
Participation Rate
The participation rate — the share of the population that is working or looking for work — fell to 61.4%, which excluding the pandemic was the lowest since the 1970s. Among those between the ages of 25 and 54, known as prime-age workers, participation edged higher but remained near the lowest levels of the last few years.
Pay gains also came in below estimates. Average hourly earnings rose 3.2% from a year earlier, marking the slowest pace in more than five years. Economists are paying close attention to how labor supply and demand dynamics are impacting pay.
Purchasing power will also be a key issue heading into the November midterm elections, especially as the Iran war has further driven up the cost of living. While consumer sentiment rebounded last month, consumers’ views about their current financial situation remain below levels seen in recent years.