Nick Rummell

MANHATTAN (CN) — The U.S. unexpectedly lost 23,000 jobs last month, compared with a gain of 83,000 positions most economists had predicted.

The jobs report, released Friday by the U.S. Bureau of Labor Statistics, marks the second time this year the U.S. jobs market has shrunk, though not as drastically as the 156,000 jobs lost last February.

The unemployment rate continued its downward trajectory. After dropping to 4.2% in June, the rate dipped further to 4.1% for July. However, the labor participation rate keeps dropping, down 0.7% since January.

Revisions to the two previous jobs reports further clouded the picture, with May’s report tuned down by 66,000 positions and June’s report by 37,000. Just 83,000 jobs were added in those two months, compared with the 186,000 initially reported.

Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said the report “shows that job growth was slow in the middle of 2026 but the job market is still tightening due to a shrinking labor force.”

He noted the private sector gained 30,000 jobs in July, “which was slow but not a crisis,” pointing to the 53,000-job loss among government positions as the main reason for the disappointing report.

While some sectors saw limited gains, those are now trending downward. The healthcare industry, which had been adding roughly 36,000 jobs per month over the last year, gained only 22,000 positions in July. Other crucial sectors, like the retail and leisure and hospitality industries, shed jobs.

On Wednesday, the private payroll report from ADP also was a miss, showing just 44,000 jobs were added to the private sector compared with the roughly 75,000 expected.

The biggest gain was in the education and health services sectors, which netted 36,000 jobs, while all other industries either lost jobs or gained a few thousand positions. Leisure and hospitality shed 11,000 jobs last month.

However, the pay rate for those changing jobs ramped up by the largest pace in nearly a year, with a 7% median increase in July compared to a year ago. Those staying at their jobs saw their wages rise by 4.4%.

“Job-changers are highly sensitive to real-time economic conditions, and their rapid pay growth implies supply constraints in parts of the labor market,” Neal Richardson, ADP’s chief economist, said in a statement. “Typical hiring patterns, meanwhile, are changing as employers react to shifting macro-economic conditions.”

While ADP highlighted the wage gains among job-changers, other experts don’t think that points to a tightening labor pool. “We wouldn’t read too much into one month of data,” Matthew Martin at Oxford Economics wrote in an investor’s note. “The quits rate, a good barometer for workers’ confidence in the market, hasn’t budged as of the latest data.”

Indeed, the quits rate in the latest JOLTS report this week remained nearly unchanged at 3.2 million. Job openings and hirings also remained relatively unchanged at 7.4 million and 5.3 million, respectively.

The JOLTS report lags by a month from other jobs reports, but despite the wariness among workers to leave their jobs and below-normal hiring rates among employers, the recovery of job openings among retailers is a sign of a recovering labor pool.

That is not true among all sectors, though, as many characterize the “low-hire, low-fire” employment landscape as stagnant.

In its monthly small business employment index, the National Federation of Independent Business noted that more than one-third of small business owners have job openings they cannot fill, up from June and the highest reading since last summer.

“Labor quality or availability as the top concern for Main Street rose in July, with employment growth falling behind the pace of economic growth,” NFIB Chief Economist Bill Dunkelberg said in a statement. “While the labor force remains stagnant, hiring will be sufficient to keep the unemployment rate about the same as compensation inches higher.”