Hiring fell unexpectedly in July as U.S. employers shed 23,000 jobs, a surprising show of weakness in an economy battered by tariffs, elevated inflation and the ongoing war in Iran.
The unemployment rate ticked down to 4.1 last month, continuing a years-long streak of low joblessness, according to Labor Department data released Friday. But the decline was due largely to workers exiting the job market: An ongoing wave of retirements helped push the share of Americans working or looking for work to its lowest level since February 2021.
Data for June and May also were revised down by a combined 103,000 jobs, suggesting that the labor market has been weakening more than previously thought. For July, forecasters had expected gains of about 80,000 jobs; instead, last month brought the first negative job growth since Trump launched attacks on Iran in February, disrupting global oil markets and raising prices at the pump.
In addition to the war’s elevated gas prices, high inflation, advancements in artificial intelligence and President Donald Trump’s push to raise tariffs and restrict immigration may be taking a toll, economists said. Though companies enjoying Trump’s tax cuts accelerated their hiring in the first six months of this year to about 75,000 jobs per month — up from about 15,000 new positions per month last year — that momentum could be ending.
“The labor market has to fight a lot of headwinds to keep going,” said Guy Berger, director of economic research at the Burning Glass Institute, a Philadelphia think tank that studies the labor market. Citing the impact of gas prices, tariffs and predicted interest rates hikes, he said it would be “surprising” if those factors “didn’t zap some of its strength.”
During a campaign stop in Las Vegasthis week, Trump claimed to be presiding over “the greatest economy we’ve ever had by far.” The White House said early Friday that it remains on solid footing.
“The Trump industrial resurgence is on schedule,” White House spokesman Kush Desai said in a statement, pointing to low unemployment claims and a small uptick in manufacturing jobs in July. “The Trump administration is focused on unleashing more private-sector job growth through President Trump’s proven economic agenda of tax cuts, deregulation, and energy abundance.”
Democrats, keying off pollsshowing that inflation-battered voters are losing patience with Trump’s economic policies, also seized on the latest data.
“President Trump calls this the ‘greatest economy we’ve ever had.’ That might be true for his billionaire donors,” Rep. Brendan Boyle (Pennsylvania), the top Democrat on the House Budget Committee, said in a statement. “For everyone else, Trump’s tariff taxes and disastrous Iran war are raising costs, slowing growth, and hurting the job market.”
The biggest takeaway from the report may be that a hiring slowdown has been brewing since spring as higher costs from tariffs and higher prices from delayed oil shipments weighed on employers’ expansion plans. Meanwhile, job creation for this year’s World Cup also disappointed and financial pressures appear to have driven significant summer job losses in local public schools.
The unemployment rate ticked down, however, because the labor force has been steadily shrinking. Baby boomers hitting retirement age are exiting the workforce, but some working-age people have also been moving to the sidelines to wait for better job opportunities.
“A big part of this decline is demographics,” said Joe Brusuelas, chief economist at RSM, a London tax and consulting firm. “It’s the simple aging of the population.”
In bad news for Republicans set to face midterm voters on Nov. 3, Friday’s report also showed growth in average hourly wages cooling to the slowest pace since the pandemic. Wages rose to $37.62 an hour in June, and by 3.2 percent over the past year. Inflation data expected next week could show prices again growing faster than wages, another blow to consumers’ pocketbooks.
Looking across sectors, the report shows health care continuing to lead job gains between June and July with 22,000 new positions. Construction payrolls fueled by the data center boom also grew. And the information sector and professional and business services added jobs — welcome news for frustrated college graduates.
But other industries continued to stagnate, shedding or barely adding jobs in July, in keeping with trends over the past 12 months.
Public K-12 schools and community colleges led job losses, cutting 50,000 positions. Omair Sharif, president of Inflation Insights, a financial research firm, said in an analyst’s note that the big reduction is likely to be a reflection of falling student enrollment and rising costs, as well as the expiration of federal pandemic aid. But other economists said the declines may reflect seasonal data distortions related to school closures that should result in job gains in future months.
Leisure and hospitality shed 40,000 jobs, as World Cup hiring appeared weaker than anticipated, and restaurants, bars and entertainment venues reduced staff. The retail and finance sectors also shrank.
At least one group found a silver lining in the disappointing report: Wall Street traders are betting that the softer-than-expected labor market will lower the odds of Federal Reserve policymakers raising interest rates when they meet in September.
Last week, three Fed officials voted for a rate increase to combat stubborn inflation, a significant show of dissent for the Fed’s decision to hold rates steady. Friday’s jobs data could dampen pressure for a rate hike, analysts said, but the declining unemployment rate is likely to keep the Fed’s focus on inflation data due next week.
“If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet the calls for hikes inside the Fed, or lower expectations outside of it,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
Amid Friday’s gloomy news, signs remain that the labor market is sturdy. Consumer spending remains healthy. New unemployment benefit claims last week came in at low levels, according to another Labor Department report released Thursday. And U.S.-based employers announced just 33,429 job cuts in July, the lowest monthly total in two years, according to a separate report published this week by the outplacement firm Challenger, Gray & Christmas.
The lack of churn in the labor market has puzzled economists, who typically expect layoffs to increase during periods of weak hiring. Many analysts say Trump’s immigration restrictions, including deportations and the U.S.-Mexico border closure, have reduced workforce growth, and so fewer jobs are needed to keep the unemployment rate steady.
Economists expect a late-summer hit from the administration’s termination of temporary protected status for hundreds of thousands of immigrants from Haiti, a move that has triggered mass layoffs.
“There’s just nothing that’s been typical about the post-pandemic economy,” said Diane Swonk, chief economist at KPMG economist. “Any labor market that’s healthy has a healthy level of churn. But this labor market keeps defying the usual rules of economics.”
Andrew Ackerman and Luis Melgar contributed to this report.
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