Job losses in July reveal unexpectedly sluggish labor market

The US economy unexpectedly lost jobs in July, the latest jobs report from the Bureau of Labor Statistics reported, further dashing hopes that the summer months would warm the cooling labor market.

Diving into the data. Total payrolls for July declined by 23,000 from the month prior, significantly below the gain of 95,000 that economists predicted. Additionally, jobs gains for May and June were revised down, from 129,000 to 63,000 and 57,000 to 20,000—that’s 103,000 fewer than first reported.

The employment decline in July was largely driven by local government education, which fell by nearly 50,000 month over month, although Daniel Zhao, Glassdoor’s chief economist, noted that such a decline in this sector is “a little bit unusual” for the middle of summer, and could be an issue with the data being seasonally adjusted, as those jobs could return later in the year.

In the private sector, July saw a payroll increase of 30,000, led by healthcare which added 22,000 jobs, primarily in ambulatory care services. Still, retail trade payrolls declined by 19,000, and financial activities fell by 14,000. That said, the private payroll gains for July were still lower than what experts expected. Combined with the significant downward adjustments for payroll growth in May and June, the late spring and early summer have not yielded a reacceleration in the labor market, Zhao said.

“I think this does point to a more placid pace of jobs growth, even if that 23,000 job loss headline figure is maybe overstating the weakness a little bit,” he said.

The unemployment rate fell slightly, from 4.2% in June to 4.1% in July, and was down from 4.3% year over year. But that was likely tied to a decline in the labor force participation rate, which fell to 61.4%, continuing its downward slide since May. Two months of data isn’t enough to declare a trend, but Zhao noted that “the decline in labor force participation is a more concerning indicator that workers are giving up on finding a job.”

Zoom out. Despite concerning topline numbers, there are signs that the labor market is stable. Unemployment insurance claims have fallen year over year, and layoffs remain low. Additionally, there are still more job openings than there are people actively looking for work. In the months ahead, HR and TA leaders will want to watch for signs of continued stability in labor turnover, or even a potential uptick, experts said.

“It certainly does show that we are returning to a more normalized, balanced labor economy. I actually still expect the September surge to be a real thing. I know we talk about it every year, we all get surprised when the numbers are actually great in September,” Amy Glaser, SVP of business operations at Adecco, told HR Brew. “So I continue to expect August probably will be similar to the past couple months, a little bit lackluster, but I fully anticipate, in September, hiring to spring back in again.”

Looking ahead, HR leaders should craft their talent strategies to be resilient and adaptive to uncertainty. It’s difficult to gauge which direction the labor market is headed when turnover is slow, Zhao said.

“Being reliant on the latest data is going to be harder in the current environment,” Zhao said. “So it’s a combination of knowing what your strategy is, making sure that strategy is resilient to changes in the job market, but also allowing for flexibility in case things do materially change for the positive or for the negative.”

HR leaders should also encourage TA teams and hiring managers to have an open mind when reviewing candidates, and emphasize soft skills over hard skills, Glaser said. Most roles are expected to change drastically in the coming years as AI continues to reshape work, and hiring teams should look for candidates (including existing workers) with the potential to adapt and develop with roles as they change.

“We often get a short-term lens, and I think in this economy right now, you have to really put on that lens of long-term sustainability,” she added.