US economy sheds 23,000 jobs in July; Unemployment drops to 4.1% on shrinking workforce

At the same time, the unemployment rate fell slightly to 4.1% from 4.2% in June. The drop in the unemployment rate came even as hiring weakened because fewer people were actively participating in the labour force.

Earlier job numbers revised sharply lower

The latest report also showed that job growth in the previous two months was much weaker than first reported. June’s job gains were revised down to 20,000 from the earlier estimate of 57,000. May’s figure was also cut sharply to 63,000 from 129,000. The revisions erased 103,000 jobs from previous estimates.

“The Federal Reserve’s focus is squarely on inflation,” wrote Heather Long, chief economist at Navy Federal Credit Union told CNBC. “That’s the right call, but it’s important to keep an eye on whether this economy is creating enough opportunities for young Americans trying to establish a career path.”

Local government and retail saw the biggest losses

Job losses were mainly seen in local government education, which lost 50,000 jobs in July. Retail trade also cut 19,000 jobs, with warehouse clubs, supercentres and fuel stations seeing the biggest declines.

The financial sector continued to lose jobs, shedding 14,000 positions during the month. Employment in the sector has fallen by 121,000 since its recent peak in May 2025.

“Although the hiring rate is low, the unemployment rate remains steady because layoffs are also low,” Fed Governor Lisa Cook said Wednesday to CNBC. “The low-hire, low-fire equilibrium hits some groups, including new entrants, especially hard and may restrain worker sentiment for good reason.”

Health care was one of the few sectors that continued to add jobs, although hiring slowed. The industry added 22,000 jobs in July, compared with an average monthly gain of 36,000 over the past year.

Most other major industries, including manufacturing, construction, professional services, transportation, hospitality and information, saw little change in employment.

“While labor market data may still be described as ‘stable’ for now, we expect this to change in just a few months with the unemployment rate rising above 4.5%,” Citi economists Veronica Clark said in a note. “This would shift focus back to the possibility of rate cuts, with cuts restarting in Q4 in our base case.”

Unemployment rate changes little

The unemployment rate stood at 4.1% in July, while the number of unemployed people remained almost unchanged at 6.9 million. The number of people on temporary layoff increased by 153,000 to 921,000, while the number of permanent job losers remained largely unchanged at 1.7 million.

Fewer people are part of the workforce

The labour force participation rate, which measures the share of people working or looking for work, remained at 61.4% in July. Since January, it has fallen by 0.7 percentage point. The employment-population ratio, which shows the share of people with jobs, also stayed almost unchanged at 58.9% in July but has declined by 0.5 percentage point since the beginning of the year.

Average hourly earnings for private-sector workers were almost unchanged at $37.62 in July. Compared with a year ago, wages were up 3.2%. The average workweek remained unchanged at 34.3 hours, while manufacturing workers continued to work an average of 40.4 hours a week.

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