US suffers unexpected job losses in July, markets dial back rate hike expectations

"This is the third summer in a row that we have seen unexpected weakness in the labor market," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "Policymakers broadly see the labor market as stable." Nonfarm payrolls decreased by 23,000 jobs last month, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising 80,000 after advancing by a previously reported 57,000 in June. Estimates ranged from as low as 10,000 to as high as 140,000 jobs added. The economy added 103,000 fewer jobs in May and June than previously estimated. Last year's big downgrades to the two months led to President Donald Trump's firing of the BLS commissioner, Erika McEntarfer. Trump, without offering evidence, accused McEntarfer of manipulating the data. Job growth averaged 20,000 per month over the past three months. It averaged 77,000 per month in the three months through June. Financial markets priced in a 43.9% chance of the U.S. central bank hiking rates in September, compared with 57% before the jobs report, according to LSEG data. The Fed last week left its benchmark overnight interest rate in the 3.50%-3.75% range. Three members of the Fed's policy-setting committee dissented, preferring a quarter-percentage-point hike. Next week's inflation data could sharpen the debate on the near-term monetary policy outlook. Stocks on Wall Street were trading higher. U.S. Treasury yields fell, while the dollar slipped against a basket of currencies. The U.S. economy unexpectedly shed jobs in July and previously reported job gains for the prior two months were revised sharply lower, tempering financial market expectations for an interest rate hike from the Federal Reserve next month. While the Labor Department's closely watched employment report on Friday showed the unemployment rate falling to 4.1% last month from 4.2% in June, that was because another 264,000 people left the labor force, pushing the participation rate to a near 5-1/2-year low of 61.4%. Job growth, however, has a tendency to slow down during summer, a phenomenon that economists attributed to difficulties adjusting the data for seasonal fluctuations. Much of the decline in payrolls, the first in five months, was centered in local government education. There was a second straight month of job losses in the leisure and hospitality industry, attributed by economists to the fading boost from the FIFA World Cup. Economists urged against interpreting the data as a sign of an abrupt deterioration in the labor market. Local government education employment dropped 49,600 last month, the most since October 2021, and contributing to a 53,000 decrease in overall government payrolls. Excluding government, private payrolls increased by 30,000, matching June's gain. Economists expected the slump in local government, which they said was a seasonal quirk, to reverse in August. Leisure and hospitality employment decreased by 40,000, losing jobs for a second straight month. Payrolls at restaurants and bars dropped by 26,100. The retail trade sector lost 19,000 jobs, the bulk of them at warehouse clubs, supercenters and other general merchandise stores. Employment in financial activities fell further, shedding 14,000 jobs. Financial activities jobs are down by 121,000 since peaking in May 2025. Healthcare payrolls increased 22,000, but well below the monthly average of 36,000 over the past year. There were 22,000 construction jobs added, while manufacturing employment rose 5,000. The share of industries reporting job growth fell to 51.8% from 53.2% in June. Despite weakness in job growth, the average workweek held at 34.3 hours. But wage growth slowed, increasing 3.2% year-on-year after rising 3.4% in June. Details of the household survey from which the unemployment rate is derived were mostly weak. Household employment dropped 87,000 and the number of people working part-time for economic reasons increased 123,000 to 4.804 million. The median duration of unemployment fell to a still-elevated 10.5 weeks from 11.0 weeks in June. The participation rate, or the proportion of working-age Americans who have a job or are looking for one, has declined in six of the past seven months. "It isn't lights out yet for the economic outlook, but the future is dim if pessimism leads to more dropouts and companies cannot get the help they need to produce the goods and services the economy needs to grow," said Christopher Rupkey, chief U.S. economist at FWDBONDS.

US suffers unexpected job losses in July, markets dial back rate hike expectations

Payrolls, revisions and market reaction

Jobs report shows unexpected decline in July

Sector details and household survey weakness

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