US economy unexpectedly sheds 23,000 jobs in July; unemployment rate eases to 4.1%

Employment was little changed in the construction and manufacturing sectors in July.

WASHINGTON – The US economy unexpectedly shed jobs in July and non-farm payrolls for the prior month were revised sharply lower, potentially raising questions about whether the Federal Reserve will increase interest rates in September.

While the US Labour Department’s closely watched employment report on Aug 7 showed the unemployment rate falling to 4.1 per cent in July from 4.2 per cent in June, that was because another 264,000 people left the labour force, pushing the participation rate to a near 5½-year low of 61.4 per cent.

“The labour market appears to have slammed the brakes on new hiring,” said Christopher Rupkey, chief US economist at FwdBonds.

“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.”

Non-farm payrolls decreased by 23,000 jobs in July after a downwardly revised 20,000 increase in June, the Labour Department’s Bureau of Labour Statistics (BLS) said in its closely watched employment report on Aug 7.

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. Big downgrades to the two months led to President Donald Trump’s firing of BLS commissioner Erika McEntarfer.

Financial markets priced in a 43.9 per cent chance of the US central bank hiking rates in September, compared with 57 per cent before the jobs report, according to LSEG data. The Fed last week left its benchmark overnight interest rate in the 3.5 per cent to 3.75 per cent 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. US Treasury yields fell after the data, while the dollar slipped against a basket of currencies.

Payrolls in July were weighed down by a 50,000 decline in local government education employment. The retail trade sector lost 19,000 jobs, the bulk of them at warehouse clubs, superstores 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.