US payrolls fall 23,000 in July as revisions signal labor weakness

The July jobs report delivered a headline surprise that masks a deeper slowdown.

US nonfarm payrolls fell 23,000 in July, the first drop in months, while revisions to May and June cut combined growth by 103,000 — pointing to a labor market cooling faster than the 4.1 percent jobless rate suggests.

Jeffrey Rosenberg, portfolio manager of the Systematic Multi-Strategy Fund at BlackRock, said he would be "hesitant" to write off the report, calling the headline number "a bit confusing" while flagging that the revisions point to labor weakness.

The unemployment rate edged down to 4.1 percent from 4.2 percent in June, with 6.9 million people unemployed. Local government education shed 50,000 jobs and retail trade lost 19,000, while financial activities fell 14,000 — down 121,000 from a May 2025 peak. Health care added 22,000 positions, below its 36,000 monthly average over the past year. Private payrolls rose 30,000, meaning the government sector accounted for the swing into negative territory, shedding 53,000 positions.

The report strengthens the case for Federal Reserve rate cuts after the central bank held its policy rate at 3.5 percent to 3.75 percent in July. With average hourly earnings up 3.2 percent year over year and the labor force participation rate down 0.7 percentage point since January, markets will watch the August report on September 4 for confirmation of the slowdown.

The payroll decline came in well short of the 85,000 gain economists had forecast, and the revisions deepened the picture of a slowing market. May's gain was cut to 63,000 from 129,000, while June's was reduced to 20,000 from 57,000 — a combined 103,000 fewer jobs than previously reported. The average monthly gain over the prior 12 months stood at 34,000, roughly half the pace that would keep the unemployment rate steady.

Revisions Reveal a Thinner Hiring Base

Within retail, warehouse clubs, supercenters and general merchandise retailers posted the biggest declines, shedding 21,000 positions, while gasoline stations and fuel dealers lost 5,000. Sporting goods, hobby and book retailers added 10,000. Leisure and hospitality shed 40,000 jobs on the month, according to the establishment survey. The number of people on temporary layoff rose by 153,000 to 921,000, while permanent job losers were little changed at 1.7 million.

The labor force participation rate held at 61.4 percent, while the employment-population ratio stayed at 58.9 percent — both edging lower since January. Among demographic groups, unemployment fell for teenagers to 12.1 percent and for Hispanic workers to 4.6 percent. Rates for adult men (3.9 percent), adult women (3.7 percent), and White (3.6 percent), Black (6.3 percent) and Asian (4.0 percent) workers showed little change.

Fed Path Hinges on August Data

The last time payrolls contracted was in the spring of 2025, when a government shutdown and tariff uncertainty pushed hiring into negative territory before a rebound. That episode preceded a period of easing expectations that lifted equities and pressured the dollar. If August confirms the slowdown, futures markets are likely to price additional cuts beyond the current 3.5 percent to 3.75 percent range, with the next Fed decision scheduled for September.

Rosenberg's caution reflects the mixed signals: a falling unemployment rate alongside contracting payrolls and downward revisions. "The revisions are pointing to labor weakness," he said, even as the headline jobless figure improved. The divergence leaves the Fed balancing a cooling jobs market against inflation that remains above target, with the September 4 employment report set to tip the balance.

This article is for informational purposes only and does not constitute investment advice.