U.S. employers unexpectedly cut 23,000 jobs last month, and Labor Department revisions shaved 103,000 jobs off payrolls in May and June. The unemployment rate dipped to 4.1% only because Americans left the job market.
The July jobs numbers from the Labor Department on Friday marked a sharp reversal for the American labor market and a setback for President Donald Trump less than three months before his Republican party seeks to keep full control of Congress in the midterm election.
Forecasters had expected job creation to approach 100,000 last month.
Local public schools cut 50,000 jobs in July, restaurants and bars 26,000, and retailers 19,000.
The 4.1% unemployment rate was the lowest since June 2025—but it dropped for the wrong reasons: Fewer people were competing for work, as 264,000 dropped out of the labor market. The share of those working or looking for work fell to 61.4%, the lowest since February 2021.
Hiring had rebounded this year from a lackluster 2025 in the face of the conflict in the Persian Gulf that has sent energy prices surging and put a strain on family budgets. Job growth had been solid, if unspectacular. Some businesses are having trouble filling vacancies. Others are using technology to do the work humans used to do.
Americans who have jobs are enjoying unusual job security. Layoffs are low by historical standards. Companies, scarred by the surprise labor shortages that followed COVID-19 lockdowns a few years ago, don’t want to risk giving up the staff they have.
One week in July the number of Americans filing for unemployment benefits dropped to the lowest level in more than 50 years. The jobless rate tumbled to 4.2% in June, the lowest in a year until the July figure came out.
But Americans who have lost their jobs—or are seeking to bust into the job market for the first time—are struggling to catch a break.
Economists have used the term “no hire, no fire” to describe the unusual job market conditions.
So far this year, employers are adding 61,000 jobs a month, up from 9,700 in 2025, the weakest outside a recession since 2002.
The United States doesn’t need as many jobs as it used to keep the unemployment rate from rising. Trump’s immigration crackdown and the retirement of baby boomers mean fewer people are competing for work. So the break-even rate of monthly hiring, 155,000 in 2023-2024, has dropped, perhaps to nearly zero, according to a Federal Reserve study.
“There are just fewer people available to hire,” said Sal Guatieri, senior economist at BMO Capital Markets. For some, labor shortages translate into higher wages. The payroll processor ADP reported Wednesday that people who changed jobs last month pocketed a 7% raise, the biggest year-over-year gain in almost a year and a premium over a 4.4% increase for workers who stayed where they were.
At the same time, companies have become more productive in recent years, using technology to do the work that humans used to do. “We are seeing companies produce more with their current staff,” Guatieri said. “So there’s less need to take on new workers.”
Shortages of available workers and rising productivity, he said, “will keep the lid on the rate of hiring and monthly job growth.”
In a report out this week, the researchers Ingrid Chen, Marianna Kudlyak, and Riva Mikhlin of the Federal Reserve Bank of San Francisco found that landing a job has gotten tougher in the past couple of years—surprisingly so.
Normally, this deep into an economic expansion—it’s been more than six years since the last recession—employers would need workers so badly that they’d be taking chances on young people and on those with less education. Not this time. “Instead of being pulled in, the pipeline into employment is shrinking such that the recovery is no longer reaching workers at the margins,” Chen, Kudlyak, and Mikhlin write.
Moreover, the unemployed people who normally get back to work the fastest—those in their prime working years (25 to 54) and with college educations—are struggling to find new jobs. The San Francisco Fed researchers aren’t sure what’s making the job search so tough. They suspect it might have to do with the immigration crackdown, hiring slowdowns specifically at tech companies and government contractors, uncertainty over the direction of government policy, or “early signals of broader labor market deterioration.”
—Paul Wiseman, AP Economics Writer