US Jobs Shed 23,000 in July, Sending Stocks to Record and Killing Fed Rate-Hike Bets

The U.S. economy lost 23,000 jobs in July, the Labor Department reported Friday, stunning economists who had forecast a gain of 80,000 positions and upending financial market expectations for a Federal Reserve interest-rate increase at its September meeting.

The miss was compounded by steep downward revisions to the prior two months. Previously reported job gains for May and June were revised lower by a combined 103,000, according to CBS News and Business Standard. The unemployment rate fell to 4.1% from 4.2% in June, but only because 264,000 people left the labor force, pushing the participation rate to a near five-and-a-half-year low of 61.4%, the Star-Advertiser and Business Standard reported.

**Stocks Surge, Dollar Tumbles**

Wall Street reacted with a sharp rally. The S&P 500 gained 0.6% to close at a record 7,757.64, according to The Straits Times. The Nasdaq Composite rose 1.3% to 26,690.62, and the Dow Jones Industrial Average added 0.28% to 54,036.93. For the week, the S&P 500 gained 3.58%, the Nasdaq rose 5.19%, and the Dow climbed 2.96% — their biggest weekly percentage gains since mid-April, the paper reported.

The dollar fell sharply against major currencies. The dollar index, which measures the greenback against a basket including the yen and euro, dropped 0.44% to 99.50, according to the Star-Advertiser. The dollar weakened 0.57% against the yen to 157.56, and the euro rose 0.39% to $1.1568. The decline reflected waning expectations for a Fed hike, the Star-Advertiser noted.

Treasury yields fell. The 2-year note yield, which moves in step with Fed rate expectations, dropped 4.2 basis points to 4.245%, while the benchmark 10-year yield fell 2 basis points to 4.649%, the Star-Advertiser reported.

Gold rose 2.55% to $4,347.29 an ounce as the dollar weakened, according to the same source.

**Fed Rate-Hike Odds Collapse**

Market expectations for a rate hike from the Fed at its next meeting in September plummeted to about 44%, according to CME FedWatch data cited by The Straits Times and the Economic Times — down from 55% the prior session and 67% a week ago. The probability the Fed will hold rates steady in September rose to 56%, CBS News reported, up from 45% a day earlier.

“The chances of holding just went up pretty significantly today,” Cory Stahle, senior economist at Indeed Hiring Lab, told CBS News. “What we see in the jobs report maybe says that the Federal Reserve, at the very least, might have to think about the timing of a potential rate hike, if not think about some rate cuts on the table as well, if we continue to see this type of deterioration in the labor market.”

The data is “likely to revive concerns among Fed officials about the health of the labour market and make them less inclined to commit to near-term tightening,” Thomas Ryan, an economist at Capital Economics, told the Channel NewsAsia source.

Thierry Wizman, global FX and rates strategist at Macquarie Group, told the Star-Advertiser: “I think no one really expected non-farm payrolls to be negative or that there would be a big downward revision in the June numbers. I’m inclined to think that the market has shifted the Fed hike into October or December instead of September.”

The Fed, under new Chairman Kevin Warsh, has offered investors little forward guidance on monetary policy, leading market participants to focus on economic data, The Straits Times and the Economic Times reported. At the Fed’s last meeting, three members of the policy-setting committee dissented, preferring a quarter-percentage-point hike, Business Standard reported.

**The Fed’s Quandary**

The suddenly wobbly job market complicates the Fed’s dual mandate of maximizing employment and keeping prices stable. The Fed typically cuts rates to stimulate a slowing economy but raises them to fight inflation.

“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,” Heather Long, chief economist at the Navy Federal Credit Union, told CBS News in an email. “The Federal Reserve has to stay focused on inflation, but the labor market is vulnerable to any downturn.”

In June, inflation rose at an annual rate of 3.5%, CBS News reported, still above the Fed’s 2% target. July’s Consumer Price Index report, due Aug. 12, is forecast to show inflation eased to an annual pace of 3.4%, according to FactSet data cited by CBS News.

Tom Siomades, chief market economist at AE Wealth Management, told The Straits Times and the Economic Times: “You probably have to lower rates to kind of stimulate job growth, but if you lower rates, you’re going to also stimulate inflation. So you’re kind of in a pickle at this point, and yet the market’s just taken off because earnings have been stellar.”

**Sector Breakdown and Seasonal Factors**

Much of the July decline was centered in local government education, which shed 49,600 jobs — the most since October 2021 — contributing to a 53,000 decrease in overall government payrolls, Business Standard reported. Excluding government, private payrolls rose by 30,000, matching June’s gain. Economists attributed the local government slump to a seasonal quirk expected to reverse in August, the outlet said.

Leisure and hospitality employment fell by 40,000, losing jobs for a second straight month, with restaurants and bars dropping 26,100 positions. The retail trade sector lost 19,000 jobs, mostly at warehouse clubs and general merchandise stores. Employment in financial activities fell by 14,000, down 121,000 since peaking in May 2025.

Healthcare payrolls increased by 22,000, well below the monthly average of 36,000 over the past year. Construction added 22,000 jobs, and manufacturing rose 5,000. The share of industries reporting job growth fell to 51.8% from 53.2% in June.

Wage growth slowed to 3.2% year-on-year from 3.4% in June, Business Standard reported. The average workweek held at 34.3 hours. The number of people working part-time for economic reasons increased 123,000 to 4.804 million, and household employment dropped 87,000.

The Trump administration downplayed the report, blaming it on federal downsizing and layoffs in World Cup hospitality, according to CBS News.

**Earnings Season Buoys Markets**

Despite the weak jobs data, a strong earnings season has tempered concerns about massive spending by AI-related companies, sending each of the three major indexes to their biggest weekly percentage gains since mid-April, The Straits Times and the Economic Times reported. Among the 436 companies in the S&P 500 that have reported through Friday morning, 85.1% have topped analyst expectations, well above the 68% average since 1994, according to LSEG data cited by both outlets.

Elon Musk’s SpaceX surged 15.8% a day after the expiry of the first of several share lockup restrictions following its record public offering in June, The Straits Times reported. Collaboration software maker Atlassian shot up 35.3% for its largest-ever daily gain, and chip company Microchip Tech jumped 13.9% after both forecast quarterly revenue above estimates. Vacation rental company Airbnb rose 17.4% as the best performer on the S&P 500 after beating second-quarter revenue estimates. In contrast, ad-tech firm Trade Desk plummeted 21.9% as the worst performer after forecasting third-quarter revenue below expectations.

**Cautious Outlook**

Some economists cautioned against reading the July data as a sign of abrupt deterioration. “This is the third summer in a row that we have seen unexpected weakness in the labor market,” Stephen Stanley, chief U.S. economist at Santander US Capital Markets, told Business Standard. “Policymakers broadly see the labor market as stable.”

But others warned of darker prospects. “It isn’t lights out yet for the economic outlook, but the future is dim if pessimism leads to more dropouts and companies cannot get the help they need to produce the goods and services the economy needs to grow,” Christopher Rupkey, chief U.S. economist at FWDBONDS, told Business Standard.

Bank of America economists, cited by CBS News, said they are sticking with their call that the Fed will hike by 0.75 percentage points this year, starting in September. “The Fed is likely to remain more focused on inflation than labor,” they said.