Nonfarm payrolls fell by 23,000 in July, the Bureau of Labor Statistics reported Friday, badly missing consensus estimates that had called for a gain of roughly 80,000 to 90,000 jobs. It’s the second month of outright payroll losses this year. Compounding the miss, the government revised down May and June job growth by a combined 103,000, meaning the economy has added an average of just 34,000 jobs a month over the past year—a fraction of the pace economists consider healthy.
The unemployment rate, meanwhile, ticked down to 4.1% from 4.2%. But almost every economist who weighed in Friday agreed on one thing: That’s not actually good news. The rate fell not because more people found jobs, but because the labor force shrank—by 264,000, according to several estimates—as workers, particularly those age 55 and older, dropped out of the workforce altogether.
“It’s hard to find many bright spots in today’s jobs report,” wrote Cory Stahle, senior economist at the Indeed Hiring Lab, in a note titled “Unexpected Turbulence.” In Stahle’s extended airplane metaphor, the economy has “descended from the near-stratospheric heights of 2021 and 2022” and is “facing turbulence at lower altitudes.” His conclusion doubles down on the image: “Don’t put too much stock in a single report, but don’t ignore the fact that the plane is starting to shake as the labor market looks to be entering a rough patch.”
Why the miss looks worse than it is—and why that’s still not comforting
Several economists pointed to a technical culprit behind much of July’s headline weakness: a 53,000 decline in government employment, driven almost entirely by local government education payrolls—the kind of quirk that tends to reverse itself by fall.
“This looks like a wonky seasonal adjustment fluke,” said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. Strip that out, and private payrolls actually rose by 30,000 in July, he pointed out, calling it “slow, but not a crisis.” Still, the average is a slow 20,000 per month since May, and 61,000 per month since the turn of the year. “While these data are disappointing, they are still better than the economy’s 10,000 job per month average in 2025.”
Jeffrey Roach, chief economist at LPL Financial, called the report “complicated.” He noted that the education-sector drag masked a labor market that isn’t in crisis so much as gradually losing altitude. “If we look at weekly employment data, we see minimal stress in the labor market despite the negative payroll print for July,” Roach said, calling it “an orderly slowdown.”
Jeff Schulze, head of economic and market strategy at ClearBridge Investments, offered a similar caveat, noting the education drag “is a typical seasonal development” with the end of the school year having an outsize impact. This is usually reversed in the fall, he noted, “suggesting that underlying job creation remained modestly positive.”
The turbulence economists are actually worried about
Not everyone was reassured by the technical explanations. Chris Zaccarelli, chief investment officer at Northlight Asset Management, called the report “a game changer” for how markets and the Fed should be thinking about risk. “Before today, many were expecting that the Fed had no choice but to raise rates in order to fight stubbornly high inflation, because the job market was so strong,” he added. But that clearly isn’t the case anymore.
Adams flagged a generational dimension to the turbulence that could prove more durable than a single month’s noise. Unemployment among workers ages 20 to 24 without prior work experience—a proxy for this year’s graduating class—sat at 242,000, only slightly improved from a year earlier. By his calculations, the past two years have seen the highest unemployment for recent grads since 2016.
Thomas Ryan, senior North America economist at Capital Economics, pointed to a similarly quiet warning sign buried in the data: Average hourly earnings growth decelerated to 3.2%, the slowest rate since May 2021 and a signal that “the falling unemployment is not a genuine indication that the labor market is tightening.”
Charlie Ripley, senior investment strategist at Allianz Investment Management, went furthest in reframing the stakes for policymakers. “The magnitude of the payroll miss suggests the labor market may be losing momentum and can no longer be considered the pillar of strength,” he said. “This report squarely puts the spotlight back on the employment side of the Fed’s mandate.”
Nearly every economist tied Friday’s numbers directly to the Federal Reserve’s September meeting—and most agreed that it buys the Fed room to hold rates steady, even as inflation data due out next week could complicate that calculus.
For now, the consensus among Wall Street’s economists is less alarm than watchfulness. As Stahle put it, the labor market isn’t crashing—but after a smooth multiyear climb, it’s hit its first real patch of unexpected turbulence, and the plane is already flying very close to the ground.
For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.