The U.S. economy unexpectedly shed 23,000 jobs in July, undershooting economists’ expectations and signaling that the labor market may be cooling. Economists polled by FactSet had forecast that employers would add 95,000 jobs during the month, making the actual decline a significant departure from projections.
The unemployment rate in July stood at 4.1%, down slightly from 4.2% in June. However, this decline largely reflects slower labor force growth, with fewer people entering or remaining in the workforce. The labor force participation rate, which measures the percentage of the population either working or actively looking for work, fell again to reach 61.4% in July, the lowest level recorded since February 2021.
“The rate dropped to 4.1% in large part because labor force growth has stalled, not because opportunity is expanding,” said Angela Hanks, chief of policy programs at the Century Foundation, a nonpartisan think tank. This sentiment is echoed by broader data showing that hiring remains muted compared to the post-pandemic rebound years.
The Labor Department also revised down the May and June jobs numbers by a combined 103,000, a clear sign that hiring was weaker than previously reported. Nic Puckrin, a markets expert and former Goldman Sachs analyst, noted in an email that hiring has effectively gone into reverse, suggesting that many jobs previously thought to exist in earlier months never materialized.
Sector-specific data reveals that losses in local government education and retail dragged down the overall employment figures, with those sectors losing 50,000 and 19,000 jobs, respectively. Conversely, healthcare, which has been the primary driver for payroll gains in the U.S. this year, added 22,000 jobs.
Kory Kantenga, the head of economics for the Americas at LinkedIn, described the current job market as “slow,” particularly for young people. He noted that there is little movement in the market, as unemployment remains steady but hiring has failed to pick up meaningfully for years. LinkedIn data from July indicates that hiring and job postings remained essentially unchanged from June, while job-seeking intensity increased, suggesting heightened competition for a limited number of roles.
Despite the stagnation in hiring, layoffs have recently hit their lowest level in two years, reinforcing the “low fire, low hire” label economists often use to characterize the current labor market. Separate data released Thursday shows that weekly unemployment claims remain historically low, with the four-week average of initial jobless claims dipping below 200,000 for the week ending Aug. 1, the first time it has fallen below that threshold since October 2022, according to PNC Economics.
“Although the hiring rate is low, the unemployment rate remains steady because layoffs are also low,” Fed Governor Lisa Cook said during an event at the Anchorage Economic Development Corporation on Wednesday. Meanwhile, American workers continue to face financial pressure; a new analysis of Census data found that while typical wages have increased since 2019, those gains have been largely offset by rapidly climbing consumer prices.
The unexpected job loss in July could ease pressure on the Federal Reserve to raise interest rates at its next meeting, scheduled for Sept. 15-16, according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. Zentner noted that inflation data expected next week will be the “deciding factor.” She added, “If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet the calls for hikes inside the Fed, or lower expectations outside of it.”
The central bank has held interest rates steady for five consecutive meetings, though some officials have signaled openness to raising rates to tame inflation, which remains well above the 2% target. At the most recent Fed meeting in July, three Federal Open Market Committee members voted to raise rates, while nine voted to hold them steady.
Unemployment is holding steady, but we haven’t seen hiring pick up meaningfully in years,” he told before the release of Friday’s jobs report.
Americans with jobs are facing their own set of challenges.
