US labor market reverses: 23,000 jobs lost in July as hiring stalls

The U.S. economy shed 23,000 jobs in July, badly missing the roughly 83,000 gain economists had projected and breaking a four-month run of growth. The Bureau of Labor Statistics also cut its prior two months by a combined 103,000, trimming May to 129,000 and June to 57,000. Unemployment edged down to 4.1%, but the labor force participation rate fell to its lowest since February 2021, with more than two million people leaving the workforce since November — a sign the headline rate is falling partly because people are giving up.

The losses were broad. Local government education dropped 50,000 (largely a summer-break effect), leisure and hospitality fell 40,000, retail lost 19,000, and finance shed 14,000. Health care, construction, and manufacturing added jobs, with construction and manufacturing gains tied in part to the AI data center buildout — a boom that has boosted some sectors while splitting the communities where the centers are sited. Wage growth came in at just 0.1% month-over-month and 3.2% annually, the weakest in five years and below the 3.5% inflation rate, so real earnings are shrinking. The backdrop remains the ongoing U.S.–Iran conflict, which has kept the Strait of Hormuz partly closed, gasoline near $4.04 a gallon, and inflation stuck at 3.5%.

Markets rallied on the bad news because a weak report lowers the odds of a Federal Reserve rate hike: futures-implied September hike odds fell from over 50% to about 40%. The S&P 500 rose 0.6% and the Nasdaq 1.3%, the 10-year Treasury yield slipped to around 4.6%, and 30-year mortgage rates eased to 6.74%. Analysts warned the labor market may no longer be the economy’s pillar of strength.