The US Lost Jobs in July. So Why Did Unemployment Still Drop?

Keypoints:

• • The US shed 23,000 jobs in July, badly missing the 85,000 economists expected
  • May and June job growth was revised down by a combined 103,000
  • The unemployment rate still fell to 4.1%, purely because fewer people were looking for work
  • Labor force participation dropped to 61.4%, the lowest reading since 1976 outside the Covid years
  • Local government education, retail, and finance lost a combined 84,000 jobs, while healthcare added 22,000

The US shed 23,000 jobs in July, blindsiding economists who'd expected 85,000 added, according to the Bureau of Labor Statistics. It gets worse the closer you look. May and June's job growth numbers were revised down by a combined 103,000, meaning the economy has quietly been running colder than anyone realized for months already, and July's miss wasn't really a surprise so much as the moment the trend became impossible to ignore. 

Local government education, retail, and financial services led the losses, shedding a combined 84,000 jobs between them, while healthcare stayed the lone bright spot, adding 22,000.

The unemployment rate still fell to 4.1% anyway, and that's the part actually worth sitting with. It didn't drop because hiring picked up. It dropped because so many people stopped looking for work entirely that the labor force participation rate hit 61.4%, its lowest point since 1976 outside the Covid years. 

A shrinking labor force can flatter the headline unemployment number while the underlying picture gets worse, which is exactly the disconnect economists are now trying to untangle.

Fed rate-hike odds for September dropped to 44% on the news, a single weak jobs report doing what months of internal Fed debate over inflation couldn't quite settle. It's a reminder of something worth keeping in mind for every economic release going forward, the headline number and the real story underneath it aren't always pointing the same direction.