U.S. Lost 23,000 Jobs in July, While Unemployment Ticked Lower -- 3rd Update

By Matt Grossman

The U.S. labor market shed jobs in July, an unexpected contraction likely to renew questions about the economy's fundamental strength at a time when it is also facing elevated inflation.

The Labor Department's July jobs report showed that the economy lost 23,000 last month, a big shortfall versus the gain of 83,000 that economists surveyed by The Wall Street Journal had expected. Also, revisions to May and June payrolls numbers showed that the economy added 103,000 fewer jobs in those two months.

More Americans stepped back from the labor market entirely, according to the Labor Department's separate monthly survey of households. As a result, the unemployment rate eased to 4.1%, from 4.2% in June, even though fewer people were working.

The sizable pullback in hiring -- not just in July, but in downwardly revised May and June numbers -- marked a shift for a labor market that appeared on the upswing earlier this year.

Private-sector weakness

Government job losses pulled July's numbers into negative territory. But private-sector hiring made a weak showing as well. Overall, private employers added just 30,000 jobs.

In a bright spot likely reflecting the boom in data centers, the construction sector added 22,000 jobs last month. Manufacturing gained 5,000. But leisure and hospitality employers cut 40,000 workers, while retailers shed more than 19,000 employees.

Private-sector education and healthcare jobs grew by 25,000, a relatively weak showing for what has been a big source of new jobs over the past year.

View from the Fed

The July report, and downward revisions, left the job market looking suddenly shakier, and could give Federal Reserve officials pause before pressing forward with a rate increase some had been considering in September. The numbers paint a somewhat ambiguous picture for the central bank. It aims for lower unemployment, but this month, unemployment fell for the wrong reasons.

Elevated inflation is likely to remain the Fed's main focus for now. It led three officials to dissent in favor of a rate increase at the Fed's meeting last month, and others have more recently suggested a rate increase could be the best next move.

On Friday morning, traders slightly pared back their bets that the Fed will raise interest rates next month. Before that meeting, the Fed will still get plenty of additional data to consider, including another month of job-market numbers and July and August inflation stats.

Kevin Warsh, the Fed's chairman since May, has said little about his read of the labor market, in keeping with his philosophy that investors should form their own judgments about economic fundamentals. Before Friday's data, other officials had argued that a sounder job market should make the Fed comfortable with raising rates if needed.

"I consider the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point," Fed governor Lisa Cook said on Wednesday. With the Fed's September meeting on the horizon, she said officials should be prepared to raise rates.

Big revisions

Friday's report marks the second straight year that the July report brought substantial negative revisions to previous months' data. When the July 2025 data were published a year ago, the May and June totals were revised down by a combined 285,000, leaving President Trump so angry that he fired the commissioner of the Labor Department's statistics agency, Erika McEntarfer, hours later.

Monthly jobs revisions are a routine but frustrating reality for economists. They are necessary because many of the more than 125,000 employers surveyed monthly about staffing totals send in their responses late, if at all.

A second straight year with big negative summertime revisions, however, could send economists searching for a deeper statistical explanation for the pattern.

Mixed feelings

Even before Friday's report, Americans were saying they were unsettled about the labor market. Subdued hiring and layoffs have left many feeling stuck.

In recent months, almost three in 10 of the unemployed have been looking to work for more than six months, the greatest share since the pandemic recovery four years ago.

In a July consumer survey from the Conference Board, a research group, 24.6% said jobs seem plentiful, while 21.5% said they are hard to get -- the least favorable split since 2021.

--Photo credit: Patrick T. Fallon/Agence France-Presse/Getty Images

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

August 07, 2026 09:56 ET (13:56 GMT)