US job market stalled in July as employers cut 23,000 jobs, delivering
political setback to Trump
[August 08, 2026] By
PAUL WISEMAN and JOSH BOAK
WASHINGTON (AP) — The U.S. job market stalled unexpectedly last month,
delivering a political blow to President Donald Trump three months ahead
of midterm elections and complicating decision-making for the inflation
fighters at the Federal Reserve.
Employers cut 23,000 jobs in July. And Labor Department revisions
slashed 103,000 jobs from May and June payrolls.
The unemployment rate fell but for the wrong reason: Thousands of people
dropped out of the labor market so fewer people were competing for work.
The July jobs numbers from the Labor Department Friday marked a sharp
setback for the American labor market and for Trump less than three
months before his Republican party seeks to keep full control of
Congress in the midterm election.
Forecasters had expected job creation to approach 100,000 last month.
Local public schools cut 50,000 jobs in July, restaurants and bars
26,000, retailers 19,000.
The 4.1% unemployment rate was the lowest since June 2025 – but it only
fell because 264,000 people dropped out of the labor market last month.
The share of those working or looking for work fell to 61.4%, the lowest
since February 2021.
“We can't really put lipstick on a pig here,'' said Daniel Zhao, chief
economist at the jobs website Glassdoor. ”This is not a great report for
July.''
Manufacturing up, but public schools down
The Trump administration, which has imposed massive tariffs in an
attempt to protect American industry and create manufacturing jobs,
noted that jobs were up 22,000 at construction companies and 5,000 at
factories.
“The Trump industrial resurgence is on schedule," said White House
spokesman Kush Desai. "Manufacturing and factory construction jobs grew
again in July even as government payrolls continued to significantly
shrink.’’
Trump has long bragged that jobs have been increasing for native-born
citizens in his economy, but that talking point was undermined by the
July numbers. The White House declined to comment on why Friday's report
showed that employment for native-born Americans dropped by 720,000 over
the past 12 months. Those numbers can be quirky. They’re not adjusted
for seasonal changes and are not seen as a reliable measure of total
native-born employment. But the administration had latched onto them as
evidence that Trump's immigration crackdown was benefiting people born
in the United States.
To raise or not to raise
Policymakers at the Federal Reserve have been divided over whether to
start raising interest to combat inflation that has exceeded their 2%
target for more than five years. The Fed kept rates unchanged at its
meeting last week — but three officials dissented from that decision in
favor of a rate hike. Wall Street traders were expecting rate hikes
later this year. Friday’s report may at least delay higher rates.
“The Fed has to consider the health of the job market as they debate
whether a hike is justified,″ said Glassdoor’s Zhao. ”The softness in
today’s report is going to have to give the Fed a little bit of pause.″
July wage gains were modest. Average hourly pay was up 3.2% last month
from July 2025, the smallest year-over-year increase since May 2021. The
smaller wage gains are coming at a time when American families are
squeezed by the high cost of living.
“This is a bleak jobs report," said Heather Long, chief economist at
Navy Federal Credit Union. "The U.S. labor market is stalling again and
that is going to make the Federal Reserve’s job harder and life for job
seekers rough.''
Women lost 32,000 jobs last month, the Labor Department reports,
accounting for all the job losses in July. But that marked a reversal in
women’s fortunes: They still gained 321,000 jobs over the past 12
months; men lost 5,000 over that period.
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Hiring sign for sales professionals is displayed at a store, in
Vernon Hills, Ill., Wednesday, April 15, 2026. (AP Photo/Nam Y. Huh,
file)
 Economists noted that private
payrolls continued to grow in July and that the big drop in public
school payrolls might have been a statistical glitch caused by
seasonal adjustments.
Rebounding from a miserable 2025
Hiring had rebounded this year from a lackluster 2025 in the face of
the conflict in the Persian Gulf that has sent energy prices surging
and put a strain on family budgets. Job growth had been solid, if
unspectacular. Some businesses are having trouble filling vacancies.
Others are using technology to do the work humans used to do.
Americans who have jobs are enjoying unusual job security. Layoffs
are low by historical standards. Companies, scarred by the surprise
labor shortages that followed COVID-19 lockdowns a few years ago,
don’t want to risk giving up the staff they have.
One week in July the number of Americans filing for unemployment
benefits dropped to the lowest level in more than 50 years. The
jobless rate tumbled to 4.2% in June, the lowest in a year, and is
expected to have stayed there last month, according to a survey of
forecasters by the data firm FactSet.
But Americans who have lost their jobs – or are seeking to bust into
the job market for the first time – are struggling to catch a break.
Economists have used the term "no hire, no fire'' to describe the
unusual job market conditions.
Hiring in the year to date remains weak
So far this year, employers are adding 61,000 jobs a month, up from
9,700 in 2025, the weakest hiring outside a recession since 2002.
But job creation this year is well below the 2023-2024 average of
166,000 jobs a month — and it had been even higher during the
2021-2022 hiring boom that followed the end of COVID-19 lockdowns.
At least the United States doesn’t need as many jobs as it used to
to keep the unemployment rate from rising. Trump’s immigration
crackdown and the ongoing retirement of baby boomers mean fewer
people are competing for work. So the “break-even’’ rate of monthly
hiring, 155,000 in 2023-2024, has dropped, perhaps to nearly zero,
according to a Federal Reserve study.
The jobs outlook is clouded by the ongoing fighting in the Persian
Gulf, which has pushed up energy prices and squeezed family budgets,
and by the rise of artificial intelligence, which could either make
workers more efficient and better-paid -- or take their jobs.
In a report out this week, researchers Ingrid Chen, Marianna Kudlyak
and Riva Mikhlin of the Federal Reserve Bank of San Francisco found
that landing a job has gotten tougher in the past couple of years –
surprisingly so.
Normally, this deep into an economic expansion – it's been more than
six years since the last recession – employers would need workers so
badly that they’d be taking chances on young people and on those
with less education. Not this time. “Instead of being pulled in, the
pipeline into employment is shrinking such that the recovery is no
longer reaching workers at the margins,’’ Chen, Kudlyak and Mikhlin
write.
Moreover, the unemployed people who normally get back to work the
fastest – those in their prime working years (25 to 54) and with
college educations – are struggling to find new jobs. The San
Francisco Fed researchers aren’t sure what’s making the job search
so tough. They suspect it might have to do with the immigration
crackdown, hiring slowdowns specifically at tech companies and
government contractors, uncertainty over the direction of government
policy or “early signals of broader labor market deterioration.’’
____
AP Business Writer Claire Savage in Chicago contributed to this
story.
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