The US July jobs report delivered a result that few in the market had prepared for: a net loss of 23,000 jobs, against economist forecasts of an 80,000 gain. The miss lands at the worst possible moment for a Federal Reserve (Fed) already trying to balance sticky inflation against a slowing economy.
What the US July jobs report actually shows
The headline figure is bad enough. The detail beneath it is worse.
According to the Bureau of Labor Statistics (BLS) Employment Situation Summary, July’s loss follows an average monthly gain of just 34,000 over the prior 12 months, a labour market that has been decelerating steadily, and which this week confirmed the trend in the bluntest terms possible.
The US July jobs report’s sector-level breakdown deepens the concern. Reuters reports that local government education and retail trade together dragged overall payrolls down by 59,400 jobs in July. Financial activities shed a further 14,000, and that sector has now lost 121,000 positions since peaking in May 2025.
Healthcare was the one relative bright spot, adding 22,000 jobs in July, per the BLS establishment data. Even that comes with a caveat: the monthly average for healthcare over the prior year was 36,000, so the sector is running below its own trend.
Revisions to prior months offer little comfort. According to NerdWallet, citing BLS data, June was revised down to 20,000 jobs added and May to 63,000, numbers that make the recent trajectory look weaker than the headline figures had suggested at the time.
The unemployment rate did fall, from 4.2% to 4.1%, but for reasons that offer no cause for satisfaction. Neil Birrell, chief investment officer of Premier Miton, explained it directly: ‘Labour force participation is back at levels not seen since the days of Covid, meaning jobs just aren’t being created.’ A shrinking labour force pushing the unemployment rate lower is not good news dressed up as good news. It is just less bad arithmetic.
Average hourly earnings rose 3.2% in the year to July, below the 3.5% economists had expected, with all employees on private non-farm payrolls earning $37.62 an hour. Average hourly earnings for production and nonsupervisory employees stood at $32.40, little changed on the month, per the BLS. The average workweek held steady at 34.3 hours.
Three Fed dissenters and a September rate decision no one envies
The Fed held its target rate at 3.5% to 3.75% at the July meeting, as broadly expected. What was less expected was the scale of internal dissent. Three FOMC members, regional Federal Reserve presidents Lorie Logan, Neel Kashkari, and Beth Hammack, voted against the hold, preferring a quarter-point increase, according to CNBC. That is the first time three voters have dissented since 2016.
The dissent signals that a meaningful faction within the committee remains more focused on inflation, running at an annualised 3.5%, than on labour market deterioration. Gasoline prices have climbed back above $4 a gallon on average, with diesel near $5.40, according to the AAA, keeping consumer prices elevated.
Before July’s US jobs report landed, Charles Schwab noted that the CME FedWatch Tool already showed a 60.1% probability of a September rate hike immediately after Fed chair Kevin Warsh’s July press conference, down from 78.8% that same Wednesday morning. The jobs miss will pull that probability lower still.
Birrell’s read on what this means for policy was unambiguous: ‘This does leave the Fed with the problem of a weak jobs market providing a read across to growth, all at a time when inflation is a problem, but this data will ease the pressure to hike rates. It’s a big call in September.’
The Wells Fargo Investment Institute observed that, absent improvements in core inflation, the Fed may be inclined to raise rates later in the year regardless. My read is that September is now genuinely open. The Fed carries a dual mandate, and with labour force participation at Covid-era lows, the employment side of the equation is getting harder to overlook with each report.
Warsh has offered little forward guidance since taking the chair. A month ago, that ambiguity looked like deliberate policy. Today it looks like necessity. September’s decision will be the first real test of which side of his committee he chooses to back.
