Us Employers Unexpectedly Shed Jobs, Clashing With Trump's Economic Message

U.S. employers are shedding jobs and wage growth is decelerating, suggesting that President Donald Trump's labor market looks much weaker than assumed.

The Labor Department on Friday reported that employment unexpectedly contracted by 23,000 positions last month — compared with the 83,000 gain that economists had forecast. It also revised down the May and June reports by more than 100,000 jobs from payroll estimates that the White House had celebrated as a sign of the economy’s resilience.

The report is a tough beat for Republicans heading into the 2026 midterms, with voters already sour on the economy.

"Recent economic history is weaker than we thought," University of Michigan economist Justin Wolfers wrote on Xshortly after the report's release. "July's new number is downright concerning."

Even though the jobless rate fell to 4.1 percent — a level that would normally suggest workers could secure larger paychecks — average hourly earnings are growing at a slower pace than at any point since early 2021, when the labor market was still recovering from the pandemic.

The jobs report is likely to take some of the heat off the Federal Reserve to hike interest rates at its next meeting to combat persistent inflation. That may keep borrowing costs from rising, but the combination of higher interest rates, inflation and uneven wage growth has fueled pessimism that has prevailed for the last half-decade.

And the public’s negative mood about the economy is likely to persist, said David Blanchflower, an economics professor at Dartmouth College who specializes in labor market perceptions.

“Maybe you know people are expecting more from their jobs, and they’re comparing themselves to different people,” he added. Or “maybe the jobs have just become shit.”

Whatever the cause, measures of consumer sentiment and confidence have been weak. Cost-of-living issues have consistently kept Trump’s approval rating near record lows — a Reuters/Ipsos poll showed that the GOP’s long-held advantage on economic policy has eroded — and Friday’s jobs report threatens to undermine the administration’s attempts to reverse the narrative.

After the report’s release, the White House pointed to new data showing that hourly pay in politically salient sectors like manufacturing and construction is expanding at a faster rate than inflation. In a statement, senior deputy press secretary Kush Desai said the “industrial resurgence is on schedule.”

“Manufacturing and factory construction jobs grew again in July even as government payrolls continued to significantly shrink,” he added. “Unemployment claims are at record lows. The Trump administration is focused on unleashing more private-sector job growth through President Trump’s proven economic agenda.”

Earlier this week, Treasury Secretary Scott Bessent told CNBC that “the K-shaped economy is over,” referring to the country's widening income gap. And he criticized “mainstream media sophistry” in the coverage of the economy, citing data showing that the usual weekly earnings of low- and middle-income workers have outpaced inflation through the bulk of the president’s second term.

But the Labor Department has also reported that hourly earnings for nonsupervisory and production workers fell by a 10th of a percent over the last year when adjusted for inflation. Inflation-adjusted weekly earnings had climbed in the year ending in June, but those gains came with a similar increase in the average number of hours worked — a signal that some people are struggling to stay ahead.

The Federal Reserve Bank of Atlanta’s tracker shows that overall wage growth continued its late Biden-era decline after Trump’s election. Real disposable income has been flat, and the personal savings rate has fallen by almost half since early 2025. In a client note published earlier this week, Evercore ISI analysts noted that the share of economic output linked to worker pay had fallen to a record low.

That is “mostly bad news for consumer sentiment headed into midterms,” they wrote.

Even so, the soft jobs report will relieve pressure on Federal Reserve Chair Kevin Warsh to raise interest rates in September, a move that could trigger significant political backlash ahead of the election. The war in the Middle East and the corporate world’s demand for artificial intelligence software and infrastructure have pushed inflation well above the central bank’s target in recent months.

After the release of the jobs report, market participants now place a greater probability that the Fed will hold rates steady at its next meeting, according to CME’s FedWatch tool. That represents a sharp reversal from where market sentiment stood a week ago.

“This report squarely puts the spotlight back on the employment side of the Fed's mandate,” Charlie Ripley, a senior investment strategist for Allianz Investment Management, said in a statement shortly after the report’s release. “The Fed is unlikely to ignore this signal, and, if anything, it raises the bar for any Fed rate increases heading into the fall.”