US Employers Cut 23,000 Jobs as Labour Market Loses Momentum

The US labour market lost momentum in July as employers cut 23,000 jobs, marking an unexpected setback after months of modest employment growth.

The decline surprised economists who had anticipated close to 100,000 new jobs during the month and raised fresh concerns about the strength of hiring across the world’s largest economy.

Despite the drop in payrolls, the unemployment rate edged down to 4.1% from 4.2% in June. The improvement, however, came largely because fewer Americans were participating in the labour market rather than because of stronger hiring.

Around 264,000 people left the labour force during July, pushing the labour-force participation rate down to 61.4%.

Previous Job Gains Revised Lower

The July report was made weaker by substantial revisions to figures from the previous two months.

Job growth in May was revised down from 129,000 to 63,000, while June employment growth was lowered from 57,000 to just 20,000.

Combined, the revisions removed 103,000 jobs from earlier estimates, suggesting the labour market had been losing strength before the July decline.

The latest figures follow an average monthly increase of only 34,000 jobs over the previous 12 months.

Schools, Retailers and Restaurants Shed Jobs

Government employment accounted for a significant portion of July’s weakness.

Local government education lost around 50,000 positions, while retail businesses cut approximately 19,000 jobs.

Food services and drinking places also recorded a decline of about 26,000 positions during the month.

Financial activities remained under pressure, shedding another 14,000 jobs.

There were some areas of resilience. Construction employment increased by 22,000 jobs, while manufacturing added around 5,000 positions.

Healthcare also continued to expand, adding roughly 22,000 jobs, although growth was slower than its average pace over the previous year.

Unemployment Falls for the Wrong Reason

At first glance, the decline in unemployment to 4.1% appears encouraging.

However, the fall came alongside a shrinking labour force.

The number of unemployed Americans declined by about 178,000 during July, but the overall civilian labour force contracted by 264,000.

That dynamic has created an unusual environment in which unemployment can remain relatively low even while job creation weakens.

The employment-to-population ratio also slipped to 58.9%.

Iran Conflict Adds Economic Uncertainty

The labour slowdown comes as businesses and households continue to deal with uncertainty linked to fighting in the Persian Gulf.

The conflict has contributed to higher energy prices, increasing costs for businesses while putting additional pressure on household budgets.

Companies are also navigating uncertainty surrounding trade policy, tariffs and broader economic conditions, all of which can make employers more cautious about adding workers.

Even before July’s decline, economists had increasingly described the US labour market as a “no hire, no fire” environment, one in which companies remain reluctant to dismiss existing workers but are equally cautious about expanding their teams.

Hiring Needs Have Changed

Another factor shaping the labour market is slower growth in the number of available workers.

Lower immigration and the continuing retirement of baby boomers are reducing growth in the US labour force.

As a result, the economy may no longer need the same level of monthly job creation that was required several years ago to keep unemployment stable.

Federal Reserve research has suggested that the monthly “break-even” level of employment growth, the number of new jobs needed to prevent unemployment from rising, could fall close to zero in 2026.

That is a dramatic shift from 2023 and 2024, when the figure was around 155,000 jobs per month.

Technology Reshapes Employer Demand

Rising productivity and the increasing use of artificial intelligence are creating another challenge for job seekers.

Businesses are becoming more capable of producing additional output without expanding their workforces at the same pace.

For companies, technology can help reduce costs and improve efficiency. For workers, however, it may mean fewer new positions are created even when the broader economy continues to expand.

This has made conditions particularly difficult for people entering the workforce or trying to find employment after losing a job.

Wage Growth Continues

For Americans who remain employed, wage growth has continued.

Average hourly earnings for private-sector workers reached $37.62 in July, rising 3.2% from a year earlier.

Low layoffs have also provided existing workers with a degree of job security.

The contrast is becoming increasingly clear: those already employed are generally holding on to their positions, while people searching for new work are facing a much more challenging hiring environment.

The July employment report therefore adds to concerns that the US labour market is entering a period of unusually weak job creation, even as unemployment remains historically moderate.

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