Employers Cut 23,000 Jobs in July as Labor Market Stalls

U.S. employers cut 23,000 jobs in July, an unexpected contraction that points to a weakening labor market, according to a Labor Department report released Friday.

The report also revised job gains for May and June sharply lower. It was the second consecutive month in which the monthly jobs tally came in weaker than forecasters had expected.

The unemployment rate dipped to 4.1%, but the decline was not a sign of strength: more than 260,000 people dropped out of the workforce, and people who are not looking for work are not counted as unemployed.

Restaurants and retailers cut thousands of jobs last month, and local government also recorded large losses. Health care continued to add workers, but at a more modest pace than earlier in the year.

"We are increasingly hearing from workers that they are anxious about their job security and they are frustrated by the fact that they are stuck in roles that are not necessarily good for them," said Daniel Zhao, chief economist at the job search website Glassdoor. "And that's on top of workers who are not in a job right now and feel frozen out of the job market."

Glassdoor's worker confidence index slumped in July to a record low.

A harder call for the Fed

The softening job market may complicate the calculation for the Federal Reserve, which is also contending with stubborn inflation. The Fed may be more cautious about raising interest rates at a time when the labor market appears less stable.

For those who are working, average wages have risen 3.2% over the last twelve months — likely not enough to keep pace with inflation, meaning paychecks do not stretch as far as they used to.

"Part of the reason that workers are feeling bad about today's job market," Zhao said, is that "a lot of those wage gains have been eaten up by rising energy prices."