US economy unexpectedly shed jobs in July

The U.S. economy unexpectedly shed jobs in July amid headwinds caused by elevated inflation and uncertainty over the Iran war’s economic impact.

What are the key findings of the July 2026 jobs report?

The Bureau of Labor Statistics on Thursday reported that employers cut 23,000 jobs in June. That figure was well below the estimate of economists polled by LSEG, who estimated 80,000 jobs would be added.

The unemployment rate dipped to 4.1%, which was also below the estimate of 4.3%.

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Revisions were made to the payroll numbers for the prior two months, with May revised down by 66,000 from a gain of 129,000 to 63,000; while June’s report was revised down by 37,000 from a gain of 57,000 to 20,000.

Taken together, employment in May and June combined was 103,000 jobs lower than previously reported.

What sectors added or lost the most jobs in July 2026?

Private payrolls added 30,000 jobs in July, well below the 78,000 estimate of economists polled by LSEG. June’s growth in private payrolls was revised down from a gain of 49,000 to 30,000.

Government payrolls contracted by 53,000 jobs in July, with the sector’s increase of 8,000 jobs in June revised to a loss of 10,000 jobs.

The manufacturing sector added 5,000 jobs in July, above the estimate of economists polled by LSEG who expected a gain of 4,000 jobs. The June data for manufacturing was revised upward from a gain of 3,000 jobs to 11,000 jobs.

Retail lost 19,400 jobs in July, with declines in supercenters and general merchandise retailers (-21,300) and gas stations (-4,600) more than outpacing gains by sporting goods, hobby, music, book and other retailers (+9,500). Retail employment has shown little change over the last 12 months.

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Financial activities shed 14,000 jobs in July, due to losses in credit intermediaries (-8,800) as well as insurance carriers (-6,700). Employment in the financial sector is 121,000 jobs below its May 2025 peak.

Healthcare added 22,000 jobs in July, which represented a slowdown from the average monthly gain of 36,000 jobs over the last 12 months. Employment in ambulatory healthcare services contributed much of the monthly increase (+18,100).

What does the July 2026 jobs report mean for the workforce?

The number of long-term unemployed, defined as those who have been jobless for 27 weeks or more, ticked lower to 1.8 million but has been little changed over the year. The long-term unemployed accounted for 25.5% of all unemployed people in July.

The number of people employed part-time for economic reasons also changed little at 4.8 million in July. These individuals would’ve preferred full-time employment but were working part-time because their hours were reduced, or they were unable to find full-time jobs.

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The labor force participation rate was 61.4% in July, having changed little over the month. Since January, the labor force participation rate has declined by 0.7 percentage points.

Average earnings grew at 3.2% over the last year in July, below the 3.5% estimate of economists polled by LSEG, while June’s figure was revised down from 3.5% to 3.4%.

What experts are saying about the July 2026 jobs report

Jeffrey Roach, chief economist for LPL Financial, said that the “labor market is experiencing an orderly slowdown, and labor stress indicators remain historically low,” adding that the July report is likely to boost the risk appetite of investors.

“However, the decline in the unemployment rate will complicate the Fed’s decision process because the economy appears to be at full employment. But, the broad slowdown in hiring will add support for those arguing to keep rates unchanged at next month’s Fed meeting,” Roach added.

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Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs, said that, “History doesn’t repeat, but sometimes it rhymes. For the third time in as many years, July jobs data saw a mid-summer loss of momentum. While incoming inflation data will be the ultimate arbiter, slowing jobs growth helps support a September hold.”

Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said that the “weak payrolls print may ease the pressure on the Fed to raise rates at its September meeting, but next week’s inflation data will still likely be the deciding factor.”

“If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet the calls for hikes inside the Fed, or lower expectations outside of it,” Zentner added.

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Fed Chair Kevin Warsh speaks at a press conference

What does it mean for interest rate cuts?

Traders continue to see it being a close call for the Federal Reserve in terms of deciding whether to hold rates steady or hike rates in September, with July’s jobs report reversing the odds of those two outcomes.

The CME FedWatch tool shows a 55.9% probability the Fed will hold rates steady at the current target range of 3.5% to 3.75%, up from 45% a day ago. The likelihood of a 25-basis-point rate hike next month declined to 44.1% from 55% yesterday.

It also shows the Fed ending the year with one 25-basis-point rate hike as the likeliest outcome, with a 44.9% probability – compared with a 26.8% chance of two hikes of that size and a 23.6% chance of rates remaining at their current level.