Broadly unimpressive is the best description of a flawed monthly jobs report.
Yet one can observe a dichotomy between the 23,000 topline decline in U.S. jobs in July in contrast with the decline in the unemployment rate to 4.1% that suggests more noise than signal in this report.
In our evaluation, this strongly implies seasonal issues at the Bureau of Labor Statistics and noise around the post-World Cup labor market that included sharp declines in leisure, hospitality and retail employment.
Moreover, the outsized decline of 50,000 in state and local employment looks highly suspect in our evaluation.
The decline in the labor force participation rate was the reason why the unemployment rate declined to 4.1%. We expect both the top-line jobs number and unemployment rate to be revised up in subsequent data publications.
We think that the six-month average of gains in employment of 97,000 better captures the true underlying growth in the labor market—and we expect that trend will reassert itself in the second half of the year.
This data does not change our fundamental view that the U.S. economy and labor market are in a good spot heading into the latter half of the year.
Private sector nonresidential investment will continue to support economic activity, while full employment is the best description of the U.S. labor market. We expect growth in the current quarter to accelerate to 2.5% or above.
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No one is making the case—or should, for that matter—that a monthly jobs report that shows a decline is a respectable number.
It is not, and the 103,000 downward revisions to the May and June data does take the bloom off the rose from the early 2026 increase in total employment—which has now increased by 582,000 this year.
However, it is simply not going to move the needle at the Federal Reserve or among investors that can plainly observe the inconsistencies in the data. If anything, this likely will provide support to those at the central bank that are counseling patience on hiking rates given the elevated uncertainty around whether oil and energy-induced supply shocks are turning into more persistent inflation.
The immediate response among investors is that the probability of a September interest rate hike has now declined below 50% due to weak topline data and modest wage growth that in no way implies risk to the economy via the inflation outlook due to second round wage effects.
The data
The clear takeaways from the latest data were the divergence between a highly unusual July decline in state and local employment, a drop of 14,000 in the financial sector, 40,000 in leisure and hospitality, and a decline in 19,000 inside the retail trade sector. Trade and transport employment also dropped by 4,000.
Total private employment increased by 30,000. Goods-producing jobs increased by 25,000 and construction by 22,000, while manufacturing inched forward by 5,000.
Professional business services increased by 18,000, temporary employment by 3,000 and the information sector added 11,000 jobs.
The change in total non-farm payroll employment for May was revised down by 66,000 (from +129,000 to +63,000) and the change for June was revised down by 37,000 (from +57,000 to +20,000).
With these revisions, employment in May and June combined is 103,000 lower than previously reported.
On a three-month average annualized pace, average hourly earnings are up 2.5%. This is equal to where we think the July core consumer price index (CPI) will arrive when we get it. That will further affirm our expectation that there won’t be a rate hike in September.
Total private hours worked and manufacturing hours worked were flat in July. The median duration of unemployment stands at 10.5 weeks, while the number of individuals working in the labor force declined by 264,000.
The takeaway
The U.S. economy is in a good spot heading into the second half of 2026. The labor market is at full employment, while job growth and wages do not imply second-round risks to the economy via the inflation channel.
While we take zero solace from a topline decline of 23,000 in employment and the downward revision of 103,000 over the previous two months, the July jobs report provides more noise than signal.
Policymakers are not going to alter their fundamental views on the economy. The decline to a 44% probability of a rate hike by investors in the aftermath of the July jobs report tells us that investors will tend to look through the weak topline data and turn their attention to the upcoming July CPI rate.
