WASHINGTON — The American labor market stalled out last month in a way almost no forecaster saw coming, and the fallout landed on two of the most consequential decisions facing the country this fall: what the Federal Reserve does with interest rates in September, and how voters judge the economy in November.

The Labor Department reported Friday that employers cut 23,000 jobs in July. According to The Associated Press, forecasters had expected job creation to approach 100,000. Labor Department revisions also slashed 103,000 jobs from May and June payrolls, and the unemployment rate fell for the wrong reason, as thousands of people dropped out of the labor market and fewer people were left competing for work.The 4.1 percent unemployment rate was the lowest since June 2025, but it declined only because 264,000 people left the labor force last month. The share of Americans working or looking for work fell to 61.4 percent, the lowest since February 2021.

"We can't really put lipstick on a pig here," Daniel Zhao, chief economist at the jobs website Glassdoor, told the AP. "This is not a great report for July."

Where the losses landed

Local public schools cut 50,000 jobs in July, restaurants and bars 26,000, and retailers 19,000, the AP reported. Fox Business reported that financial activities shed 14,000 jobs on losses among credit intermediaries and insurance carriers, leaving employment in the sector 121,000 jobs below its May 2025 peak. foxbusiness

There were pockets of strength. Manufacturing added 5,000 jobs, slightly ahead of expectations, and health care added 22,000, though that was a slowdown from the average monthly gain of 36,000 over the previous year, according to Fox Business. <cite name="private" index="55-1">Private payrolls rose 30,000, well short of the 78,000 economists polled by LSEG had expected, while government payrolls contracted by 53,000.  foxbusiness

The White House pointed to the industrial numbers. "The Trump industrial resurgence is on schedule," spokesman Kush Desai told the AP, noting that manufacturing and factory construction jobs grew again in July even as government payrolls shrank. The report complicated another familiar administration talking point. The AP reported that employment for native-born Americans dropped by 720,000 over the past 12 months, a figure the White House declined to comment on, though the AP cautioned those numbers are not seasonally adjusted and are not considered a reliable measure.

National Economic Council Director Kevin Hassett defended the report on Fox News Friday, telling "America's Newsroom" that a shrinking available workforce means the economy needs far fewer new jobs each month to keep unemployment from rising.

The Fed's problem just got harder

Before Friday, markets were leaning toward a rate hike. They are not anymore. Fox Business reported that the CME FedWatch tool put the probability of the Fed holding rates steady at the current target range of 3.5 percent to 3.75 percent at 55.9 percent, up from 45 percent a day earlier, while the odds of a quarter-point hike fell to 44.1 percent from 55 percent. foxbusiness

CBS News reported that the next Fed meeting is scheduled for September 15 and 16, and that the central bank is trying to douse inflation that continues to run hot while a suddenly wobbly job market complicates its dual mission of maximizing employment and keeping prices stable.Inflation ran at an annual rate of 3.5 percent in June, down from 4.2 percent in May, and Fed Chair Kevin Warsh has signaled he is determined to drive it back to the 2 percent target, CBS News reported. July's Consumer Price Index, due August 12, is forecast to show inflation easing slightly to 3.4 percent, according to FactSet. CBS News

"The chances of holding just went up pretty significantly today," Indeed Hiring Lab senior economist Cory Stahle told CBS News. Stahle attributed the hiring freeze to high energy prices caused by the Iran war, steeper tariffs and the administration's immigration crackdown, saying policy and geopolitical uncertainty makes it hard for businesses to commit to a long-term hire. CBS News

Not everyone expects the Fed to blink. Bank of America economists said Friday they are sticking with a call for three quarters of a point in hikes this year beginning in September, arguing the Fed is likely to remain more focused on inflation than labor, CBS News reported. CBS News

Paychecks are not keeping up

Average hourly pay rose 3.2 percent in July from a year earlier, the smallest annual increase since May 2021, according to the AP. That is below the current inflation rate.

A CBS News analysis of Census data put the squeeze in longer perspective. The typical full-time worker earned $1,250 a week in the first half of 2026, up $342 from the year before the pandemic, a raise of 38 percent. But consumer costs rose 30 percent over the same seven years, swallowing about 80 percent of that raise and leaving roughly $70 more a week in today's dollars. CBS News

"Most Americans are getting squeezed by high inflation," Heather Long, chief economist at Navy Federal Credit Union, told CBS News. "Many Americans will have to tighten their belts this fall."

The other side of the ledger

The picture is not uniformly grim, and that is part of what makes it hard to read. CBS News reported Thursday that employers announced 33,429 job cuts in July, down 46 percent from a year ago and the lowest monthly total since July 2024, according to outplacement firm Challenger, Gray & Christmas. The four-week average of initial jobless claims has fallen below 200,000 for the first time since October 2022, according to PNC Economics Research."Although the hiring rate is low, the unemployment rate remains steady because layoffs are also low," Fed Governor Lisa Cook said at an event in Anchorage on Wednesday, per CBS News. CBS News

Economists have taken to calling it a no hire, no fire economy.

Wall Street took the weak report as good news. Fox Business reported that markets opened higher, with the S&P 500 up about 0.4 percent, the Nasdaq Composite up 0.96 percent and the Dow Jones Industrial Average up 0.13 percent in morning trading. CNN reported that the S&P 500 is back at a record high and the Dow has crossed 54,000. foxbusiness CNN

What it means for November

The AP framed the report as a sharp setback for President Donald Trump less than three months before Republicans seek to keep full control of Congress. Energy costs remain the backdrop. CNN has reported that average gas prices crossed $4 a gallon in July, up from $2.98 before the conflict with Iran began, as the Strait of Hormuz stayed largely closed.

So far this year, employers are adding 61,000 jobs a month, up from 9,700 in 2025 but well below the 2023 to 2024 average of 166,000, according to the AP. The next employment report, covering August, is scheduled for September 4, eleven days before the Fed meets.

Reporting from The Associated Press and CBS News, CNN, Fox Business