U.S. employers cut 23,000 nonfarm payrolls in July, Bureau of Labor Statistics data show. The unemployment rate simultaneously fell to 4.1 percent—not because hiring strengthened, but because fewer Americans are looking for work.
The July figures followed deep revisions to prior months. May and June payrolls were revised downward by a combined 103,000 jobs, suggesting the labor market was softer earlier this year than official estimates indicated.
The labor force participation rate fell to 61.4 percent. Excluding the pandemic period, that is the lowest reading since the 1970s. Roughly 264,000 people exited the labor force in July.
Wage growth also slowed. Average hourly earnings rose 3.2 percent year over year—the slowest pace in more than five years.
Job losses were concentrated in specific sectors. Local government employers shed nearly 60,000 jobs, primarily in education. Leisure and hospitality employment fell to its lowest level in almost a year as restaurants and bars cut staff. Retail trade also declined.
The leisure and hospitality sector's drop indicates the FIFA World Cup, which ended July 19, did not deliver the payroll boost many had anticipated. High-profile companies including Microsoft Corp. Uber Technologies Inc. and Visa Inc. announced layoffs throughout July.
Payrolls in financial activities—a sector seen as exposed to artificial intelligence adoption—fell to their lowest level in four years.
Private-sector payrolls, however, rose 30,000 for the second consecutive month, driven primarily by healthcare and social assistance. Manufacturing and construction payrolls also continued to climb.
Construction labor demand in 2026 is partly driven by data-center build-outs, even as high interest rates restrain homebuilding—a divergence within the broader jobs picture.
The weaker report could influence Federal Reserve policy. Officials may delay interest-rate increases as they weigh inflation against employment risks. Nationwide Chief Economist Kathy Bostjancic said the data should lower market expectations for a Fed rate hike in coming months.
Bostjancic also said upcoming inflation reports will be a key focus for Fed officials: if inflation runs hot over the next few months, the odds of a rate hike rise. Fed Chair Kevin Warsh has said progress toward 2 percent inflation is a prerequisite for rate adjustments.
U.S. stocks opened higher following the report and Treasury yields fell. The S&P 500 rose 0.6 percent, the Nasdaq gained 1.3 percent and the Dow Jones Industrial Average rose 0.3 percent, reflecting reduced bets on a September Fed rate hike.
Counterarguments to a broadly weak labor market persist. ADP Research reported that wage gains for private-sector job switchers picked up in July, reaching their highest level in almost a year. The Bank of America Institute found a jump in pay and job gains among lower-income households last month. The National Federation of Independent Business reported small-business hiring plans rose to their highest level in almost four years.
Stephen Stanley, chief economist at Santander U.S. Capital Markets LLC, was skeptical. "This does not look credible to me," Stanley said. "The numbers don't jibe with what we're seeing more broadly for the labor market."
