Surprise Fall in US jobs Last Month

Surprise Fall in US jobs Last Month

The US economy is creating fewer USA jobs than expected with the employment market performing weaker during the USA summer than previously thought, official figures show.There was a surprise shedding of 23,000 jobs last month, with declines driven by cuts in local government education and retail roles, despite analysts predicting growth.The Bureau of Labor Statistics also revised down the number of jobs added in May and June by 103,000, signalling a slow summer of job creation.Analysts said the latest figures could reduce pressure on the US central bank, the Federal Reserve, to raise USA interest rates next month, despite high inflation.

Despite fewer jobs being created, the Bureau of USA Labor Statistics said the unemployment rate actually dipped to 4.1% from 4.2%, as the number of people inUSA work or looking for work declined slightly.

Average hourly earnings rose by 3.2% in the year to July, compared with the 3.5% economists expected, with average hourly earnings for all employees on private non-farm payrolls at $37.62.Payrolls do have a tendency to be softer in July, but chief investment officer of Premier Miton Neil Birrell said the US jobs market was weaker "by some distance"."Labour force participation is back at levels not seen since the days of Covid, meaning jobs just aren't being created," he said.As well as keeping inflation USA stable, the Fed has a mandate to maintain a high level of employment, meaning the jobs figures are also watched closely when deciding interest rates.

Kevin Warsh, the newly-appointed chair of the Federal Reserve, has offered little forward guidance on future path of interest rates, in a policy shift from the US central bank.

Rates were left unchanged, as broadly expected, between 3.5% and 3.75% last month. USA However, consumer prices remain elevated, with inflation running at an annual rate of 3.5%.

Interest rate hikes are a tool used by central banks aiming to slow the pace at which USA prices are rising in the shops. By pushing up the cost of borrowing for things such as mortgages, loans and credit cards, central bankers hope consumers will spend less and the rate of price increases will slow.

Warsh has repeatedly said he wants to bring inflation down, but prices have been rising in the wake of the Middle East USA conflict impacting global oil prices.Gasoline prices have gone back above $4 on average following recent escalations, according to the AAA. Diesel is almost $5.40 a gallon."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 tNancy Vanden Houten, lead economist at Oxford Economics, said expectations of interest rates being raised had been "scaled back", since the decision last month.US stock markets opened higher on Friday following the release of the latest jobs figures on the prospect that the weaker data might prevent any rate hikes.

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Eric Winograd, director of developed market economics at AllianceBernstein, said that while the data did not take Fed rate rises off the table, it “certainly weakens the case” for them. But analysts said that July inflation data due out next week would be a bigger influence on policymakers’ thinking than the employment numbers. “The USA incoming inflation data, if it comes out hot, would put the pressure right back” on the Fed, said Jonathan Cohn, head of US rates desk strategy at Nomura. “Inflation is the more important side of the dual mandate right now.” Long-term US borrowing costs jumped last week after Fed chair Kevin Warsh offered scant guidance on how the central bank would contain the price pressures stemming from the war in the Middle East.

People close to Warsh have indicated he will stick to his stripped-back USA communications style when the Fed meets next month despite the Treasury sell-off. USA job growth in the initial months of 2026 appeared to have bounced back after a lacklustre 2025, but hiring has deteriorated as the year has progressed. Analysts have pointed to a “low-hire, low-fire” stasis in the labour market as movement between employers remains depressed. The July job losses were led by public sector education roles, which dropped by 50,000. Financial activities roles fell by 14,000, while the retail trade shed 19,000 posts. Omair Sharif at consultancy Inflation Insights said the headline figure had been dragged down by the “plunge” in education positions, “which most likely reflects seasonal adjustment issues around summer school closings”. Separate data released this week by payroll provider ADP also pointed to a sharp slowdown in private-sector hiring in July, with job growth falling by more than half to an estimated USA 44,000.

USA WASHINGTON, Aug 7 (Reuters) - The U.S. economy unexpectedly shed jobs in USA July and previously reported job gains for the prior two months were revised sharply lower, tempering financial market expectations for an interest rate hike from the Federal Reserve next month.

While the USA Labor Department's closely ​watched employment USA report on Friday showed the unemployment rate falling to 4.1% last month from 4.2% in June, that was because another 264,000 people left the labor force, pushing the participation rate to a near ‌5-1/2-year low of 61.4%, and USA hampering hiring.

USA Job growth, however, has a tendency to slow down during USA summer, a phenomenon that economists attributed to difficulties adjusting the data for seasonal fluctuations related to the timing of the end of the school year. Much of the decline in payrolls, the first in five months, was USA centered in local USA government education. There was a second straight month of job losses in the leisure and hospitality industry, attributed by USA economists to the fading boost from the FIFA World Cup.

Economists urged against interpreting the data as a sign of an abrupt deterioration in the labor market, with ​some still viewing the labor market as being in a "slow hire, slow fire" mode.

The big revisions to previously reported changes in the US employment level came back into focus in July, a year after a USA historically large revision to earlier employment USA estimates resulted in President Donald Trump firing the Bureau of Labor Statistics commissioner and accusing her, without evidence, of tampering with the figures.

Analysts had expected an uptick in the number of jobs being added to the economy last month of 80,000, as opposed to a loss of 23,000.As well as falls in local government USA education there were also declines in retail roles, including in wholesale stores, hypermarkets, gas stations and general mechanise shops.

The US lost jobs in July and while the USA unemployment rate fell, it was for bad reasons. Rate hike expectations have declined, but there is a lot happening before the 16 USA September FOMC meeting.

Employment Fall Highlights Corporate Caution

The US jobs report for July was surprisingly USA weak, with payrolls falling 23k while there were 103K of USA downward revisions to the past two months’ data, leaving the USA 3M average at 20,000. The unemployment rate fell to 4.1% from 4.2%, but not for good reasons. It was primarily because of a USA further drop in the participation rate – unemployed people leaving the workforce entirely. Average hourly earnings growth slowed to just 3.2% year-on-year from 3.5%.

In terms of payrolls details, the leisure and hospitality sector lost 40k jobs, which may reflect the conclusion of the FIFA World Cup, but we had also seen a 43k drop in June when it was in full swing. The financial sector lost 14k roles while retail lost 19k. The offsetting strength was in construction (+22k) and, as usual, private education and healthcare services (+25k). The chart below shows the cumulative job creation since December 2022 and indicates that, after a decent March and April, we have reverted to the very weak trend experienced from January 2025-February USA 2026.

Disengagement Drives a Fall in Participation

Regarding the drop in the unemployment rate and why this isn’t the great news it seems, we have to look at the participation rate. It fell to 61.4%, which, USA outside the pandemic, we must go all the way back to the mid to late 1970s to find a lower reading. A quarter of a million people left the labour force last month. Within that, the number of people classifying themselves as employed fell 87k while the number of people classifying themselves as unemployed fell 178k. Therefore, the fall in the unemployment rate was caused by disengagement rather than for any USA positive reason. You can see that the participation rate has fallen by more than a full percentage point over the past year. If it had held steady, we would have a US unemployment rate in excess of 5%, and we would not be talking about a possible September rate hike from the Federal Reserve.

What It Means for the Fed Outlook

Reaction has been significant, with 2Y yields down 8bp and the dollar softening, while Fed funds USA futures contracts are now only pricing 10bp of a potential 25bp hike on 16 USA September. Today’s outcome supports our call for a prolonged pause from the Federal Reserve, but remember that ahead of the September FOMC meeting we have a further jobs report, two inflation prints and the Federal Reserve’s Jackson Hole Symposium.

In terms of jobs, we would tentatively suggest a rebound is possible for August, but the Fed’s decision is more likely to come down to what happens on USA inflation. We expect next week’s July CPI expected to show headline prices rising 0.1% month-on-month and core prices rising 0.2%. Cooling housing-related inflation should pull the shelter USA CPI component lower, while weak wage growth and tariff refunds provide a cash flow boost to US companies, which should all help offset higher costs elsewhere. Assuming we get a deal to reopen the Strait of Hormuz, that can feed through into lower gasoline prices and keep the disinflation trend in place through to year-end and beyond.

While nine members of the FOMC suggested in June they think the Fed will have to hike rates, nine said they didn’t (plus, presumably, Kevin Warsh). Now of the nine that think they will hike, we strongly suspect only three are voters this year, and they are already voting for a 25bp hike. That would, in theory, mean to deliver a rate hike, we would need to see inflation come in hotter than the nine who didn’t think they would need to hike were anticipating. Given we are expecting encouraging news on disinflation, we are consequently expecting the USA Fed to remain on hold well into USA 2027.

The US nonfarm payroll shows a fall of 23,000 jobs in July, startling economists who had expected a rise of around 80,000.

Employment declined in local government education and retail trade, the US Bureau of Labor Statistics reports, but continued to rise in health care (a steady provider of jobs for Americans).

However, the US unemployment rate dipped to 4.1% in July, down from 4.2% reported last month, suggesting people dropped out of the labor for

US employers unexpectedly lost 23,000 jobs in July and gains for the previous two months were revised down sharply by a combined 103,000 jobs, painting a weaker picture of the labor market than past data indicated.

The unemployment rate, however, held steady at 4.1%. Economists had projected an unchanged unemployment rate and 83,000 new jobs for the month.

The latest data from the Bureau of Labor Statistics illustrates the continued summer slump in job growth amid ongoing conflict in the Middle East. USA Pressure has been USA mounting within the US Federal Reserve to raise interest rates to combat persistently high inflation, but July’s job report and its latest revisions may cool those USA expectations at the central bank’s next meeting.

July’s job losses were concentrated in local government education, with 50,000 jobs lost, and retail, which lost 19,000. The private sector, however, gained 30,000 USA jobs, with growth focused once again in healthcare.

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The US economy shed USA 23,000 jobs in July in the latest sign of a cooling labour market, prompting traders to scale back bets on interest rate rises by the Federal Reserve. Friday’s figure from the Bureau of Labor Statistics was down from the downwardly revised 20,000 jobs added in June and well below the bumper growth seen earlier in the year. Economists polled by Bloomberg had forecast 80,000 job gains. Hiring numbers for May and June were revised down by a combined 103,000. While employment continued to grow in the healthcare sector, jobs were lost in education, retail and financial services. The unemployment rate fell from 4.2 per cent in June to 4.1 per cent, the lowest level since June last year, as a result of people leaving the workforce. Labour force participation fell to its lowest level since 2021. “The softness in this report is something that is genuine,” said Bruce Kasman, chief economist at JPMorgan. 

“Even if we discount some of this number from a USA seasonal point of view, the breadth of slowing across sectors, the disappointment now on a three-month runway basis . . . all points to a softer job growth picture than we certainly thought we would be having at this point.” The payroll data comes as markets fret over the US central bank’s ability to keep inflation under control, ratcheting up pressure on policymakers to increase rates. But Treasury yields and the dollar fell on Friday as the weak jobs numbers prompted traders to scale back bets on a September rate increase from the Fed. The two-year yield, which moves with interest rate expectations, fell by 0.05 percentage points to 4.19 per cent. The S&P 500 rose 0.6 per cent to close at a record high. Markets are now pricing in a roughly 42 per cent chance of a quarter-point rate rise next month, down from nearly 60 per cent before the jobs data.

Posted on 2026/08/15 09:54 AM