San Francisco Frontiers - US unexpectedly loses jobs in blow to Trump ahead of midterms

The world's largest economy lost 23,000 jobs in July, data published by the US Bureau of Labor Statistics showed, signalling potential labor market weakness after months of steady growth.

The unemployment rate ticked down to 4.1 percent, likely a result of falling labor supply as the US economy grapples with an aging population and lower net migration.

Since taking office for his second term, Trump has unleashed a spate of policies aimed at reviving domestic manufacturing and curbing surging inflation.

Republicans face a stiff test in November's midterm elections, with the state of the economy a key issue for Democrats who are seeking to wrest back control of both houses of Congress.

Friday's data will also pose a question to the US Federal Reserve, which has been signalling it was preparing for a rate hike later this year.

- Implications for Fed -

The bulk of the loss in July was attributed to the local government education sector, which sees thousands of teachers drop off payrolls in the summer months.

Still, analysts had expected overall job growth, including economists polled by Dow Jones Newswires and the Wall Street Journal anticipating 83,000 new jobs to be added in July.

In addition to the loss of jobs last month, the BLS revised down job growth in the previous two months by 103,000, showing the labor market to be less robust than previously reported.

Based on the new figures, job growth hit a peak in March before declining in the next three months and entering negative territory in July.

The decline and the revisions to the previous months will spark concern that the labor market may not be as strong as was previously reported.

The unemployment rate has remained relatively steady through choppiness in the labor market, due to the overall drop in labor supply.

Friday's figures showed the labor force participation rate -- a key metric -- dropped to its lowest level since the height of pandemic-related closures in the spring of 2020.

Policymakers at the US Federal Reserve watch the labor market closely, as their dual mandate requires them to deliver maximum employment while ensuring inflation remains at a long-term target of two percent.

The Fed has missed that target for five years, as inflation has battered US households since the pandemic.

Last month, the central bank held interest rates steady, but three regional Fed presidents dissented in favor of a rate hike.

"This morning's report is a game changer in the sense that all of the recent focus has been on inflation and this report highlights the risks that are embedded in the labor market as well," said Chris Zaccarelli of Northlight Asset Management.

Kathy Bostjancic, chief economist at Nationwide, said the Fed would not be swayed by a single job report from its inflation focus.

"The soft labor market report should lower market expectations for a Fed rate hike in the coming months, but the inflation reports will be the key focus for Fed officials," she said.

- Wages lag inflation -

Sector-wise, retail trade lost 19,000 jobs, with employment declining in warehouse retailers -- firms like Costco, Sam's Club and others that offer discounts for wholesale quantities of household goods -- and general merchandise stores.

Employment in the financial activities sector continued its downward trend, having lost 121,000 jobs from its May 2025 peak.

The health care sector has buoyed the US labor market over the last year, with more Americans aging and requiring medical assistance.

In July, the sector added 22,000 jobs, but it was a slower pace than its average gain over the last year.

Average hourly earnings increased by 3.2 percent year-on-year, lagging inflation and therefore leaving workers with less income in real terms.

R.Moore--SFF