The US economy unexpectedly lost 23,000 jobs in July, marking the first monthly payroll decline since February and raising fresh concerns about the strength of the American labor market. The July 2026 US jobs report, released by the Bureau of Labor Statistics on Friday, came in far below expectations. Some forecasts had pointed to a gain of about 85,000 jobs. Economists polled by Reuters expected an increase of 80,000. The weakness also extended beyond July. The BLS revised May payroll growth down from 129,000 to 63,000 and June growth from 57,000 to just 20,000. Together, the revisions erased 103,000 jobs from earlier estimates. Unemployment falls as workers leave labor force The unemployment rate slipped from 4.2 percent in June to 4.1 percent in July. However, the decline did not reflect stronger hiring. Reuters reported that 264,000 people left the labor force during the month. That pushed the labor force participation rate down to 61.4 percent, its lowest level since February 2021. The BLS said participation has fallen 0.7 percentage point since January. Read More: US imposes new tariffs on 60 trade partners, including Pakistan Household employment also dropped by 87,000. Meanwhile, about 4.8 million people worked part time for economic reasons. The figures have intensified scrutiny of President Donald Trump’s economic agenda, particularly policies affecting immigration and labor supply. Reuters reported that the US labor force has fallen by more than one million people this year. Hospitality, education and retail lead losses Leisure and hospitality lost 40,000 jobs in July, its second straight monthly decline. Restaurants and bars accounted for 26,100 of those losses. Local government education employment fell by nearly 50,000, contributing to a 53,000 decline in total government payrolls. Retail trade lost 19,000 jobs, while financial activities shed 14,000. Some industries still added workers. Healthcare gained 22,000 jobs, construction added 22,000 and manufacturing increased employment by 5,000. Average hourly earnings rose only two cents to $37.62. Wages increased 3.2 percent from a year earlier, slowing from 3.4 percent in June. The average workweek remained unchanged at 34.3 hours. Markets rethink Federal Reserve rate path Financial markets treated the weak report as a reason for the Federal Reserve to avoid further tightening. Treasury yields fell, the dollar weakened and US stocks moved higher. The S&P 500 later closed at a record high. Reuters said markets cut the probability of a September rate hike to about 44 percent from 57 percent before the report. The Fed kept its benchmark rate at 3.50 percent to 3.75 percent last week. Economists cautioned against treating one weak month as proof of a recession. Seasonal distortions can affect summer employment, especially around the end of the school year. Stephen Stanley, chief US economist at Santander US Capital Markets, said: “Policymakers broadly see the labor market as stable.” Still, the combination of payroll losses, sharp downward revisions, weaker participation and slower wage growth gives policymakers a clear warning that the US labor market is losing momentum.