US Employers Shed 23,000 Jobs in July; Unemployment Rate Falls to 4.1% as Fed Rate Path Shifts
The Facts
- U.S. nonfarm payrolls fell by a seasonally adjusted 23,000 in July, compared with economist forecasts of a gain of roughly 80,000 to 83,000 jobs.
- The Bureau of Labor Statistics revised May and June payrolls down by a combined 103,000, lowering June to a 20,000 gain and May to 63,000.
- The unemployment rate declined to 4.1% from 4.2% in June, which economists attributed primarily to people leaving the labor force rather than to stronger hiring.
- The labor force participation rate fell to 61.4%, the lowest level since February 2021.
- Job losses were concentrated in local government education, which fell by about 50,000, and leisure and hospitality, which fell by about 40,000.
- Market-implied odds of a Federal Reserve rate hike in September fell after the report; CME FedWatch odds of the Fed holding rates rose to about 60% from 45% the prior day, and Kalshi's odds of a hold rose to 65% from roughly even.
- Stocks rose and Treasury yields fell after the report, as traders bet the weaker labor data would deter the Fed from raising rates.
- The data leaves the Fed facing competing pressures between elevated inflation and a weakening job market, with analysts divided over whether a September increase remains possible and attention shifting to the next consumer price index release.
- The report landed roughly three months before U.S. midterm elections and was described by news outlets as a political setback for President Donald Trump's administration.
Context
How can the unemployment rate fall in a month when the economy lost jobs?
The unemployment rate counts only people who are working or actively looking for work. In July, the number of people in the labor force shrank — roughly 264,000 more people left it — pushing participation down to 61.4% La Jornada,Washington Post. Because job seekers who stop looking are no longer counted as unemployed, the rate fell to 4.1% even as payrolls contracted, a combination economists described as falling for "the wrong reason" Yahoo! Finance,Investing.com.
Why is the Fed weighing a rate hike rather than a cut?
Fed officials had been focused on inflation, which remained elevated, and had floated the possibility of raising rates CNBC. Three policymakers dissented at the central bank's July meeting in favor of an increase CNBC. The weak July payrolls data cuts the other way by raising concerns about the employment side of the Fed's dual mandate, leaving officials to balance the two Aol,CNBC.
What comes next?
Investors are turning to the consumer price index inflation reading due the following Wednesday, which analysts said would carry more weight for the rate outlook CNBC,CNBC. The Federal Open Market Committee's next scheduled meeting is Sept. 16 Investing.com. Some analysts, including Employ America's Skanda Amarnath, argue the report's underlying details still leave a September hike in play, with rates currently at 3.50%-3.75% Yahoo! Finance.
Where Left and Right agree, and where they split
- Where Left and Right agree
- The drop to 4.1% unemployment is hollow: participation at its lowest since February 2021 means people left the labor force, and both reads call that headline misleading.
- Where Left and Right split
- Schools and service jobs vanishing under people already squeezed by prices, or government payroll cuts masking private hiring while the Fed keeps inflation in view.
How left and right read it
Fifty thousand jobs gone in local government education, forty thousand more in leisure and hospitality — the schools and the low-wage service work that hold communities together. The headline rate fell to 4.1%, but participation sank to 61.4%, its lowest since February 2021. That is not recovery. Any read of this economy that treats a shrinking labor force as strength is measuring the wrong thing, and the people already squeezed by prices will pay for the error.
“Zoom in, and the hazards are clear. The unemployment rate fell because tens of thousands of people gave up on looking for jobs altogether. Wages are still being eaten up by inflation.” — CNN
Read the composition, not the headline: the decline was concentrated in local government education, while private payrolls rose — "hardly a robust gain, but enough to show that the overall decline was driven overwhelmingly by government cuts." Unemployment fell only because people exited the labor force, participation the lowest since February 2021. The Fed should weigh elevated inflation soberly, not let one payroll print and shifting betting odds do its thinking.
“Private-sector payrolls, by contrast, increased by roughly 30,000 jobs, hardly a robust gain, but enough to show that the overall decline was driven overwhelmingly by government cuts.” — Townhall
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