U.S. jobs are declining, but unemployment rate is falling

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U.S. jobs are declining

Which sectors are losing jobs

The biggest contribution to the July decline came from local government education, where employment fell by 50,000. Retail trade lost another 19,000 jobs, while financial activities shed 14,000 positions.

Healthcare, which has recently remained one of the main drivers of employment growth, added 22,000 jobs. However, even this result was below its 12-month average increase of 36,000.

With employment growth virtually absent, wage gains were also minimal. Average hourly earnings increased by just 2 cents. On an annual basis, wage growth slowed to 3.2%, below the expected 3.5%.

The report comes amid disagreements within the Federal Reserve over the future path of interest rates. The labor market had previously shown signs of recovering after a weak 2025, while inflation remains well above the Fed’s 2% target.

In recent days, several Fed officials have suggested that a rate hike could come as early as September if price growth fails to slow. Last week, the Federal Open Market Committee voted 9-3 to keep its benchmark interest rate unchanged.

Following the jobs report, traders revised their expectations for the timing of a possible rate increase. According to CME Group’s FedWatch tool, the probability of such a move in September fell to 44%, while the likelihood of an October hike was estimated at 58.3%.

U.S. stock index futures, meanwhile, rose noticeably on expectations of a more dovish Fed stance. Futures tied to the Dow Jones Industrial Average gained around 200 points, while U.S. Treasury yields fell sharply after trading near flat earlier in the session.

Why it is important to track the U.S. unemployment rate

The unemployment rate is one of the key indicators of the health of the U.S. economy. A rising rate usually signals weakening demand for labor and may precede a slowdown in consumer spending, as job losses or concerns about employment can make households more cautious about purchases. A falling unemployment rate, by contrast, often points to a resilient labor market, although the figure should be assessed alongside job growth and the labor force participation rate.

The Federal Reserve also closely monitors unemployment because labor market conditions directly influence interest rate decisions. A rapid deterioration in employment could strengthen the case for a more accommodative monetary policy, while a strong labor market gives the Fed more room to keep rates elevated in order to combat inflation. As a result, unemployment data can significantly affect investor expectations, the U.S. dollar, Treasury yields and the U.S. stock market.

As a reminder, the U.S. jobs report may trigger increased market volatility.

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