The U.S. economy unexpectedly lost jobs in July, but the unemployment rate fell slightly, the U.S. Bureau of Labor Statistics reported Friday in a snapshot of the slowing employment situation.
In the same month, non-farm payrolls decreased by a seasonally adjusted 23,000 people, and the downwardly revised figure for June was a decrease of 20,000 people. The Dow Jones consensus forecast was for an increase of $83,000.
At the same time, the unemployment rate fell to 4.1% as the labor force participation rate fell further to 61.4%, the lowest in more than five years, again indicating fewer Americans are working or looking for work.
In addition to weak numbers in June and July, the final figures for May were revised down by 63,000, or 66,000 fewer than previously expected. The revised figures reduce the 12-month average to just 34,000 cases.
“July’s jobs report confirms that the labor market is not out of the woods yet,” said Nicole Bashaw, labor economist at ZipRecruiter.
The decline was due to the loss of 50,000 jobs in local government education and 19,000 retail jobs. Financial activities also recorded a decline of 14,000 jobs, while leisure and hospitality also recorded a decline of 40,000 jobs, which may be due to the end of the World Cup tournament.
Healthcare, which is the driving force behind job creation, rose by 22,000 jobs, below the 12-month average of 36,000. The construction industry also saw an increase of 22,000 people.
Private employment did increase that month, increasing by 30,000 people while government employment decreased by 53,000.
While employment was flat, employee pay also did not increase in real terms over the month. Average hourly wages increased by just 2 cents, dropping the 12-month average to 3.2%, below the expected increase of 3.5% and the lowest level since May 2021.
The report reveals that while the labor market is improving from the moribund year of 2025, there is disagreement among Federal Reserve policymakers about which direction interest rates should go in an economy where inflation is well above the central bank’s 2% target.
In recent days, multiple Fed officials have expressed support for raising interest rates as early as September if the pace of inflation does not ease. The Federal Open Market Committee voted 9-3 last week to keep the benchmark interest rate unchanged.
Following the jobs report, traders shifted their bets to when the Fed would raise interest rates. According to CME Group’s FedWatch futures price gauge, the odds of a move in September were 44%, falling to 58.3% in October.
On the other hand, stock market futures recorded a steady rise on the back of expectations that the Federal Reserve will become dovish. Futures tied to the Dow Jones Industrial Average rose nearly 200 points, and U.S. Treasury yields fell sharply after being near flat in early trading.
“This morning’s report is a game-changer in the sense that all the attention lately has been on inflation, and it also highlights the risks in the labor market,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “Until today, many expected the job market to be so strong that the Fed would have no choice but to raise rates to combat persistently high inflation, but this report shows that is not the case.”
Details in the report confirmed the weak headline numbers.
The number of household employees, which measures the total number of people who report working and is used to calculate the unemployment rate, fell by 87,000 people. However, the unemployment rate declined as the labor force decreased by 264,000 people. Excluding the period of the coronavirus pandemic, participation rates are the lowest since mid-1976.
“Unemployment is going down, but mostly for the wrong reason: There aren’t enough workers,” said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. “In the first years of the post-pandemic outbreak, immigration compensated for an aging workforce, but that is no longer the case.”
The employment-to-population ratio has fallen again to 58.9%, the lowest level since May 2014. Replacement unemployment measures, which include disengaged workers and those in part-time work for financial reasons, held steady at 7.9%.
