US July Payrolls Fall by 23,000 in Surprise Sign of Cooling Labor Market

Unemployment rate edges down to 4.1%

US nonfarm payrolls unexpectedly contracted in July, offering a clear sign that the labor market is weakening. The slowdown also tempered expectations for further interest-rate increases.

The Bureau of Labor Statistics said on August 7 that nonfarm payrolls fell by 23,000 in July from the previous month. That was well below the market forecast for an 85,000 increase. It also marked a sharp pullback from the 57,000 jobs added in June. Payroll growth for May and June was revised down by a combined 103,000.

The unemployment rate edged down to 4.1% from 4.2% a month earlier. The labor-force participation rate fell to 61.4%, the lowest since February 2021. Wage growth also cooled, with average hourly earnings rising 0.1% from a month earlier and 3.2% from a year earlier in July.

The weaker-than-expected jobs data lowered the odds of another Fed rate increase in September. CME FedWatch showed the probability implied by US interest-rate futures fell to 44% from 58% immediately after the report. New York stock-index futures rose and the dollar weakened as investors priced in the prospect of less tightening.

The employment report was the first major economic release since Fed Chair Kevin Warsh scrapped forward guidance. With markets relying more heavily on incoming data, investors are expected to closely watch the consumer price index report due on August 12.

Kim Mi-ri, Hankyung.com reporter mirimiri@hankyung.com