Job seekers wait in line to receive free resume writing services at the Inspire Together job and resource fair on July 29, 2026 in Los Angeles, California.
Patrick T. Fallon | AFP | Getty Images
Job growth is not expected to show much improvement in July, as payrolls and the unemployment rate are likely to remain relatively stable, with economists keeping an eye on the headline numbers for further clues about the health of the labor market.
Nonfarm payrolls are expected to increase by just 83,000 people, and the unemployment rate is expected to remain unchanged at 4.2%. This would reflect a weaker result in June, when payrolls increased by just 57,000 people.
Beyond the headline numbers, key indicators will be released about the overall strength of the job market, including labor force participation rates, wage growth, and the sectors currently driving the labor market.
This will paint an important picture for Fed officials, who have recently expressed great confidence in the labor market and enough concerns about inflation to raise the possibility of raising interest rates in the near future.
Inflation focus
“Inflation is exactly what the Federal Reserve is focused on,” said Heather Long, chief economist at Navy Federal Credit Union. “That’s the right decision, but it’s important to continue to focus on whether this economy is creating enough opportunities for young Americans looking to establish career paths.”
One of the eye-catching statistics in the June report was the dramatic slump in workers who either had jobs or were actively looking for them. The labor force participation rate fell to 61.5%, the lowest level since March 2021, when the economy was still recovering from the coronavirus shock. Excluding the pandemic era, this was the lowest participation rate since June 1976.
Of particular concern was a similar plunge in the so-called prime age participation rate (a group that includes workers aged 25 to 54), which fell to its lowest level since December 2023 and the largest monthly decline on record except for April 2020, shortly after the pandemic was declared.
Economists will be waiting to determine whether the trend is a statistical anomaly caused by seasonality or other distortions or a deeper symptom of deeper problems in a labor economy characterized by common delays in companies hiring and firing.
“There are fewer jobs and fewer layoffs.”
“While employment is low, there are also few layoffs, so the unemployment rate remains stable,” Federal Reserve President Lisa Cook said Wednesday. “The low-employment, low-layoff equilibrium is hitting some groups particularly hard, including new entrants, and could legitimately dampen worker sentiment.”
Mr Cook added that he was confident in the labor market but would support further rate hikes if inflation did not improve, joining a growing chorus of central bankers calling for monetary tightening. Average hourly wages are expected to rise 0.3% in July and 3.5% from a year ago, a level that is actually considered consistent with the Fed’s 2% inflation target.
Fed officials typically focus on the unemployment rate rather than monthly changes in payrolls. However, the unemployment rate remains low, mainly due to a decline in labor force participation. Employment levels in 2026 actually fell by 833,000 people.
That’s why economists like Citigroup think the Fed’s equation could change later this year. Citi has diverged significantly from the consensus calling for three rate cuts between now and January 2027.
“While labor market statistics may still be considered ‘stable’ for now, with unemployment above 4.5%, we expect that to change in just a few months,” Citi economist Veronica Clark said in a note. “This brings the focus back to the possibility of rate cuts, with a base case for rate cuts to resume in the fourth quarter.”
Economists at Vanguard said 401(k) data showed a payroll increase of just 18,000 in July, pointing to a weak summer labor market and raising “the risk that this weakness will continue into the fall.”
“The increase in no-participation reflects poor recruitment, which is particularly challenging for young workers,” the asset management company said. “We expect much of this participation decline to reverse in the coming months, putting upward pressure on the unemployment rate as these workers re-enter the labor force faster than they can find jobs.”
