Payrolls across the American economy contracted by 23,000 jobs in July and the unemployment rate ticked down to 4.1 percent. The public sector's payrolls fell sharply, and the services sector hiring was soft, with a large contraction in retail and leisure. The goods-producing side of the economy, however, saw a solid expansion, with both construction and durable goods manufacturing expanding at a rapid pace.
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The U.S. economy shed jobs in July even while the unemployment rate fell.
Payrolls across the American economy contracted by 23,000 jobs in July and the unemployment rate ticked down to 4.1 percent. The public sector’s payrolls fell sharply, and the services sector hiring was soft, with a large contraction in retail and leisure. The goods-producing side of the economy, however, saw a solid expansion, with both construction and durable goods manufacturing expanding at a rapid pace.
Economists had forecast the economy would add 88,000 jobs and predicted the unemployment rate would hold steady at 4.2 percent. None of the economists surveyed by Econoday predicted a negative figure for the month.
The revisions to prior months suggest job growth was softer than previously thought. The May estimate was revised down by 66,000 to 63,000 added jobs. The June estimate was revised down by 37,000 to just 20,000. Combined, these indicate the economy had 103,000 fewer jobs than previously estimated.
The private sector added 30,000 jobs. The public sector lost 53,000, driven by a nearly 50,000 decline in state and local educational jobs.
Construction was a major source of the private sector’s gains, adding 22,000 jobs. Manufacturing added 5,000, split between a strong gain of 18,000 in durable goods and a loss of 13,000 in nondurable manufacturing.
Retail trade employment declined by 19,400 in July after losing 3,400 in June. Leisure and hospitality payrolls fell by 40,000 in July following a 43,000 decline. Employment in bars and restaurants fell by 26,1000 while hotel and motel employment rose by 2,600. Employment in the category that includes spectator sports fell by 6,300 and employment at amusement parks and casinos declined by 10,100.
The decline in unemployment was driven by a decline in the labor force participation rate, which slipped from 61.5 percent to 61.4 percent.
The U.S. labor market has experienced a significant shift away from dependence on an immigration-driven workforce. Jobs numbers that may seem anemic compared with recent years may actually indicate healthy—even robust—growth under current conditions, according to economists.
Many economists now estimate the so-called “break-even” rate of job growth—the rate required to keep unemployment from rising—may be as low as zero. As a result, some months are likely to see negative payroll changes even without increasing the level of joblessness in the U.S. By contrast, when immigration was running at higher levels from 2021 through 2024, the economy needed to add more than 100,000 jobs monthly to keep pace with labor-force growth.
Retirements are also driving down the growth of the labor force, as an increasing number of members of the large Baby Boom generation leave work and smaller generations fail to fully replace them.
Average hourly earnings rose by 0.1 percent compared with June, below estimates for a 0.3 percent gain. Over the past 12 months, average hourly earnings are up 3.2 percent. The average workweek was unchanged at 34.3 hours. These figures suggest that there is very little inflationary pressure from the labor market.
The loss of jobs in retail and leisure may partly reflect the end of the World Cup, with businesses paring back payrolls after hiring up to serve surging demand related to the international sports tournament.
The fall in employment likely will ease pressure on the Fed to raise interest rates when it meets in September. Investors and economists will closely watch next week’s report on consumer prices to determine how strong inflationary pressures were in July. Last month, the consumer price index declined—indicating falling prices—largely due to a sharp drop in gasoline prices. Traders pared back bets that the Fed would hike in September following the report, with the odds of a hike based on futures prices dropping from 55 percent to 40 percent on Friday morning.
