The US labor market delivered a surprise setback in July, with nonfarm payrolls declining instead of increasing. The weaker-than-expected jobs report has reduced expectations of a Federal Reserve interest-rate hike in September, while also putting fresh focus on the health of the US economy.
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According to the latest US Labor Department data, nonfarm payrolls fell by 23,000 in July. Economists surveyed by Reuters had expected the economy to add around 80,000 jobs following a previously reported increase of 57,000 in June and the unemployment rate declined to 4.1% as more people exited the labor force.
US Nonfarm Payrolls Fall by 23,000 in July
US nonfarm payrolls fell by 23,000 in July, sharply missing economists’ expectations of an 80,000-job increase, while May and June payrolls were revised down by 103,000.
The July decline marked the first monthly drop in payrolls in five months. However, economists cautioned that seasonal factors, particularly changes associated with the end of the school year, contributed to some of the weakness.
The data also showed that job growth in May and June was revised down by a combined 103,000 positions, indicating that the underlying pace of employment growth was weaker than previously estimated.
Unemployment Rate Falls to 4.1%, But Labor Force Participation Weakens
The unemployment rate unexpectedly declined to 4.1% in July from 4.2% in June. However, the improvement did not necessarily signal stronger labor-market conditions.
Around 264,000 people left the labor force during the month, pushing the labor-force participation rate down to 61.4%, its lowest level in nearly five and a half years.
The labor force has contracted significantly this year, adding another layer of complexity for policymakers trying to assess the true strength of employment conditions.
Government Education Sector Leads Job Losses
Local government education employment recorded the largest decline, falling by 49,600 positions in July. This contributed significantly to an overall reduction of 53,000 government jobs.
Private-sector employment, by comparison, increased by 30,000 positions, matching the gain recorded in June.
Economists noted that private payroll growth may provide a clearer indication of underlying labor-market conditions, with private employment averaging gains of about 72,000 jobs per month so far this year.
Leisure, Hospitality and Retail Jobs Also Decline
The leisure and hospitality industry lost 40,000 jobs in July, marking a second consecutive monthly decline. Restaurants and bars accounted for about 26,100 of those losses.
Retail employment also declined by 19,400 positions, particularly across warehouse clubs, supercenters and other general merchandise businesses.
Together, leisure, hospitality and retail accounted for a substantial portion of the private-sector weakness during the month.
Healthcare and Construction Continue to Add Jobs
Not all sectors reported weakness. Healthcare employment increased by 22,000 jobs, although the gain was below its average monthly increase of around 36,000 over the past year.
Construction added 22,000 positions, while manufacturing employment increased by 5,000. Manufacturing has added around 31,000 jobs so far this year, with some of the gains linked to investment related to artificial intelligence infrastructure.
However, the proportion of industries reporting employment growth fell to 51.8% in July from 53.2% in June, highlighting the broader slowdown.
Wage Growth Also Moderates
Average hourly earnings increased 3.2% year over year in July, slowing from 3.4% in June.
The combination of weaker payroll growth and slower wage increases has strengthened the argument among some economists that the Federal Reserve may have less reason to tighten monetary policy in the near term.
The average workweek remained unchanged at 34.3 hours.
September Fed Rate Hike Bets Decline
Financial markets quickly adjusted their expectations following the weak jobs report.
According to LSEG data, traders were pricing in a 44% probability of a Federal Reserve rate hike in September, down from 57% before the employment figures were released.
The Fed had kept its benchmark overnight interest rate in the 3.50%-3.75% range at its previous meeting. Three members of the policy-setting committee had preferred a 25-basis-point increase.
The upcoming US inflation data could therefore become increasingly important in determining the Fed’s next policy move.
Dollar and Treasury Yields Come Under Pressure
The weaker employment report affected financial markets beyond interest-rate expectations. US Treasury yields declined, while the US dollar weakened against a basket of major currencies.
Lower yields and a softer dollar can be supportive for gold because they reduce the opportunity cost of holding the non-yielding precious metal and make dollar-denominated bullion relatively cheaper for international buyers.
This makes the latest US employment data particularly important for gold and silver investors.
Economists Warn Against Overinterpreting July Weakness
Despite the headline payroll decline, economists said the report does not necessarily indicate a sudden deterioration in the US economy.
Seasonal factors played a role in the decline, particularly in local government education employment. Some economists continue to describe the labor market as operating in a “slow hire, slow fire” environment, where both recruitment and layoffs remain relatively subdued.
Private-sector hiring also remained positive, suggesting that the headline payroll decline should be assessed alongside other labor-market indicators.
What the US Jobs Report Means for Gold
The weaker employment figures could provide short-term support to gold if they lead markets to expect a less restrictive Federal Reserve policy.
A weaker labor market can increase expectations for rate cuts or reduce the likelihood of additional rate increases. Lower interest rates and Treasury yields generally improve the appeal of gold because the metal does not generate interest income.
However, inflation remains a major factor for the Fed. Upcoming inflation data will therefore be crucial in determining whether the central bank prioritises labor-market weakness or persistent price pressures.
Key Takeaways
- US nonfarm payrolls fell by 23,000 in July, against expectations for an increase of about 80,000.
- May and June employment gains were revised down by a combined 103,000 jobs.
- The unemployment rate declined to 4.1%, but the labor-force participation rate fell to 61.4%.
- Local government education employment dropped by 49,600.
- Leisure and hospitality jobs fell by 40,000, while retail employment declined by 19,400.
- Wage growth slowed to 3.2% year over year from 3.4% in June.
- Markets reduced the probability of a September Fed rate hike to 44% from 57%.
- Treasury yields and the US dollar moved lower after the report.
- The jobs data could provide near-term support to gold if expectations for tighter Fed policy weaken.
- Upcoming inflation figures will be critical for determining the Fed’s next policy decision.
FAQs
1. How many jobs did the US lose in July 2026?
US nonfarm payrolls declined by 23,000 jobs in July 2026, contrary to economists’ expectations for an increase of around 80,000 positions. It was the first monthly payroll decline in five months.
2. Why did the US unemployment rate fall despite job losses?
The unemployment rate fell to 4.1% from 4.2% because a large number of people left the labor force. Around 264,000 people exited the labor force, causing the participation rate to decline to 61.4%.
3. What does the weak US jobs report mean for the Federal Reserve?
The weaker employment figures have reduced expectations of an immediate rate increase. Market pricing showed the probability of a September Fed rate hike falling to 44% from 57% before the jobs report. However, upcoming inflation data will remain important for the Fed’s decision.
4. How could the US jobs data affect gold prices?
Weak employment data can support gold if investors expect lower interest rates or reduced monetary tightening. Falling Treasury yields and a weaker US dollar can also improve gold’s attractiveness because bullion does not pay interest.
5. Which US sectors reported the biggest employment declines?
Local government education recorded the largest decline, losing 49,600 jobs. Leisure and hospitality employment fell by 40,000, while retail trade lost 19,400 jobs. These declines were important contributors to the overall weakness in July payrolls.
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