The United States economy unexpectedly shed jobs in July, while previously reported employment gains for the prior two months were revised sharply lower, reducing expectations of a Federal Reserve interest rate hike next month.
Nonfarm payrolls fell by 23,000 last month, the Labor Department's Bureau of Labor Statistics said.
Economists had expected payrolls to increase by 80,000, following a previously reported gain of 57,000 in June.
The unemployment rate fell to 4.1% from 4.2% in June, but the decline was driven by 264,000 people leaving the labour force. The participation rate consequently fell to a near five-and-a-half-year low of 61.4%, weighing on hiring.
The latest data also showed the economy added 103,000 fewer jobs in May and June than previously estimated.
Much of July's payroll decline was concentrated in local government education, where employment fell by 49,600, the largest decline since October 2021. This contributed to a 53,000 decline in total government payrolls.
Excluding government employment, private payrolls increased by 30,000, matching June's gain. Private-sector job growth has averaged 72,000 per month this year, leading some economists to argue that it provides a better indication of labour market conditions. They expect the decline in local government employment to reverse in August.
Leisure and hospitality employment fell by 40,000, marking a second consecutive monthly decline. Restaurants and bars lost 26,100 jobs, while retail employment decreased by 19,400, largely due to losses at warehouse clubs, supercentres and other general merchandise stores.
Employment in financial activities fell by a further 14,000 jobs and has declined by 121,000 since peaking in May 2025.
Healthcare employment increased by 22,000, well below its average monthly gain of 36,000 over the past year. Construction added 22,000 jobs, while manufacturing employment rose by 5,000.
Manufacturing has added 31,000 jobs this year, potentially supported by investment in artificial intelligence infrastructure. However, the share of manufacturing industries reporting employment gains fell to 50.0% in July from 56.9% in June.
