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Economic News

United States: Employers Apply the Brakes in July

August 7, 2026
Marc-Antoine Dumont
Senior Economist

Highlights

  • The establishment survey indicates a net loss of 23,000 jobs in July, following job gains of 20,000 in June (revised from 57,000) and 63,000 in May (revised from 129,000).
  • Average hourly earnings rose by 0.1% again in July. The year-over-year increase edged up to 4.0%.
  • The unemployment rate declined from 4.2% in June to 4.1% in July. The decrease was primarily driven by a contraction in the labour force.

Comments

After posting solid gains in the first half of the year, the labour market now appears to be losing momentum. Employment declined in July, whereas forecasters had expected a net gain of 80,000 jobs. In addition, downward revisions to the May and June figures subtracted 103,000 jobs from previous estimates. However, the weakness observed in July was not broad-based. Job losses were concentrated in a few sectors that experienced sizeable declines, including retail trade, which shed 19,000 jobs, food services and drinking places, where employment fell by 40,000, and government, which lost 53,000 positions. Among the 250 sectors surveyed, 51.8% nevertheless increased their payrolls. While this proportion was slightly below the 54.2% recorded in May, it remained well above the 42.4% observed in July 2025.

The household survey also presents a nuanced picture. The number of unemployed individuals fell by 178,000 between June and July, but the decline in the unemployment rate to 4.1% was driven mainly by a reduction of 264,000 people in the labour force. As a result, the participation rate continues to trend downward, having fallen from 62.2% in July 2025 to 61.4% in July 2026. For now, people leaving the labour force are partially offsetting the loss of momentum in employment. This dynamic is helping to keep the labour market relatively tight and wage pressures elevated. Indeed, average weekly earnings posted year-over-year growth of 4.0% in July.

Implications

Although a single month of employment losses warrants some caution, particularly given the magnitude of the revisions, the labour market slowdown appears increasingly evident. Hiring growth has now been weakening for five consecutive months. This further complicates the task facing the Federal Reserve. The labour market is slowing, yet wage growth remains strong and inflation is still above target. In an environment where risks are nearly balanced, we believe the US Federal Reserve will keep its policy rates at their current levels for several more quarters.

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