US payrolls fall 23,000 in July as hiring momentum stalls

US employers cut 23,000 jobs in July, the first payroll decline in the current run, as hiring momentum stalled and prior months were revised lower.

US employers shed 23,000 jobs in July, the first payroll decline in the current run, as prior months were revised down by 103,000 and bets on further Federal Reserve rate hikes cooled.

"Today's numbers may reframe that conversation and put the labor side of the mandate in focus," Anthony Saglimbene, chief market strategist at Ameriprise Financial, said.

Nasdaq 100 futures climbed 1.16 percent and S&P 500 futures rose 0.53 percent, while the two-year Treasury yield fell nine basis points to 4.15 percent. Traders cut the probability of a September rate hike to roughly 20 percent from 55 percent before the release.

The report hands the Fed, which holds its target range at 3.50 percent to 3.75 percent, reason to pause after a year of tightening. July consumer price data due Aug. 12 will test whether the labor-market cooling translates into slower inflation, with economists projecting 3.4 percent headline growth.

The July figure missed the consensus forecast for a gain of 80,000 jobs by 103,000. The Bureau of Labor Statistics also revised May down to 63,000 from 129,000 and June to 20,000 from 57,000, leaving the three-month average at just 20,000 jobs per month. The unemployment rate eased to 4.1 percent from 4.2 percent, though labor-force participation held at 61.4 percent, down 0.7 percentage point since January.

The decline was concentrated in a few sectors. Local government education lost 50,000 jobs, retail trade shed 19,000 and financial activities dropped 14,000, leaving that industry down 121,000 from its May 2025 peak. Health care added 22,000 jobs, below its recent monthly average of 36,000. Temporary layoffs rose by 153,000 to 921,000, while average hourly earnings climbed 3.2 percent from a year earlier, missing the 3.5 percent forecast.

The participation rate's slide since January, to its lowest level outside the pandemic since 1976, points to a labor market where employers are hiring less rather than laying off workers, a dynamic that has kept the unemployment rate low even as payrolls shrink.

The market's response was the clearest signal of how investors read the report. Nasdaq futures outperformed the Dow by 0.85 percentage point, and the two-year yield's nine-basis-point drop marked the sharpest move in the rate-sensitive part of the curve. The split in premarket earnings highlighted the tension: Atlassian jumped 32.5 percent and Cloudflare rose 15.5 percent after strong results, while The Trade Desk fell 29.2 percent after missing revenue estimates.

The data arrives as the Fed navigates its first year under Chair Kevin Warsh, who has abandoned forward guidance. Bank of America economist Aditya Bhave said a strong report could have justified as many as three rate hikes this year, while Citi's Veronica Clark projects three cuts through January 2027 as the unemployment rate breaks above 4.5 percent. The divergence leaves markets pricing a single move for the rest of 2026.

Strong second-quarter earnings have cushioned the blow. S&P 500 profit growth reached 31.1 percent as of Wednesday, with technology earnings up roughly 72 percent, and the index trades at 20.4 times projected earnings. The anticipated Friday gain would cap a week in which the Nasdaq rose 3.8 percent and the S&P 500 and Dow headed for their strongest weekly performance since April.

The next test comes Aug. 12, when July consumer price data is released, followed by producer prices on Aug. 13. A hotter-than-expected inflation reading would revive rate-hike expectations and pressure the rate-relief rally, while a cooler print would reinforce the case for a prolonged pause.

This article is for informational purposes only and does not constitute investment advice.