The loss of 23,000 jobs in July caught many of us by surprise, but the downward revisions to the prior two months’ data was a bigger deal. In any case, the labor market looks weaker after this report than it did previously.
The job loss was driven by a quirky seasonal adjustment for public school teachers, not anything in the real world.
The downward revisions to May and June’s numbers mean we are on a slower job growth path.
Slowing wage growth means a weaker job market and makes consumption growth more precarious.
Prime-age men (ages 25-54) are taking a hit with lower EPOPs.
Duration measures of unemployment may fit with a weaker labor market story.
The Job Loss Was Due to a Decline in Local Government Education Jobs that Didn’t Happen
The July report showed a drop in local government education employment of 45,000. Pulling this out would give modest job growth of 22,000 in July.
I know Trumpers like to play games with the numbers to tell a better story, but last I looked, I’m not on the payroll. The reality is that the seasonal adjustments in education can lead to weird outcomes in the summer months. School systems have changed the timing of their school years and often also their payroll system.
As a result, we had a 44.5k drop in July of 2018, which was followed by a 28.7k increase in August. There was a 46.3k drop in August of 2017, followed by a 43.9k increase in September. And in 2016, we lost 45.8k jobs in June but then gained 94.6k jobs in July.
The long and short is this 45k drop did not happen. Perhaps there is some decline in employment in public schools. Enrollments are dropping and budgets are stretched, but it’s a safe bet that most, or all, of these jobs will be back by September.
May and June Job Growth Were Revised Down by 103,000
While the job loss reported for July may not be a big deal, the downward revisions for the prior two months are. Taken together with the July number, job growth averaged just 20k a month over the last three months. Even adding in the 45,000 education jobs for July, the average is still just 35k a month.
That might still be fast enough to keep unemployment from rising in a zero-immigration economy, but it is considerably slower than what we were looking at before we got the July data.
Perhaps more concerning than the absolute number is that virtually all the job growth is in the health care and social services sectors. Growth over the last three months in these sectors has averaged 33k, more than 90% of total, even adjusting for the July education drop.
Outside of these sectors, there is very little growth anywhere. Manufacturing has been creating some jobs recently, but the average is just 5k a month. Construction is a bit better with an average of 10k. The mining sector, which includes oil drilling, has actually lost a small number of jobs since April. Even the restaurant sector is losing jobs.
There is nothing wrong with jobs in health care and social assistance. It is important work and many of these jobs are highly skilled and well-paid. It just doesn’t make for a very balanced economy.
Wage Growth Is Slowing and Not Keeping Pace with Inflation
The year-over-year increase in the hourly wage was just 3.2% in July. We have been seeing a gradual slowing from a pace of more than 4.0% in 2024. If we just take the annualized rate for the average of the last three months (May-July), compared with the prior three months (Feb-April), the story is even worse. Wage growth has slowed to 2.5%.
This raises three big issues. First, it is hard to reconcile this sort of slowing in wage growth with a strong labor market story. We can be happy that the unemployment rate is just 4.1%, which is very low by historical standards, but if workers find it easy to get jobs, it’s hard to see why wage growth would slow even in the face of rising inflation.
The second is that workers are now falling behind inflation. That means that families, who for some time have been telling pollsters and politicians that they feel financially stretched, are likely feeling even more stretched now. This is not an economy that is working for them.
Finally, an economy with near-zero job growth and negative real wage growth is not going to be driven by the growth in workers’ consumption. Insofar as we see consumption growth, it is going to come from high-income households spending based on stock gains and capital income. That is not a pretty picture, nor a well-balanced economy.
Employment Rates for Prime Age Men Have Fallen Sharply Since May
The loss of 23,000 jobs in July caught many of us by surprise, but the downward revisions to the prior two months’ data was a bigger deal. In any case, the labor market looks weaker after this report than it did previously.
The job loss was driven by a quirky seasonal adjustment for public school teachers, not anything in the real world.
The downward revisions to May and June’s numbers mean we are on a slower job growth path.
Slowing wage growth means a weaker job market and makes consumption growth more precarious.
Prime-age men (ages 25-54) are taking a hit with lower EPOPs.
Duration measures of unemployment may fit with a weaker labor market story.
The Job Loss Was Due to a Decline in Local Government Education Jobs that Didn’t Happen
The July report showed a drop in local government education employment of 45,000. Pulling this out would give modest job growth of 22,000 in July.
I know Trumpers like to play games with the numbers to tell a better story, but last I looked, I’m not on the payroll. The reality is that the seasonal adjustments in education can lead to weird outcomes in the summer months. School systems have changed the timing of their school years and often also their payroll system.
As a result, we had a 44.5k drop in July of 2018, which was followed by a 28.7k increase in August. There was a 46.3k drop in August of 2017, followed by a 43.9k increase in September. And in 2016, we lost 45.8k jobs in June but then gained 94.6k jobs in July.
The long and short is this 45k drop did not happen. Perhaps there is some decline in employment in public schools. Enrollments are dropping and budgets are stretched, but it’s a safe bet that most, or all, of these jobs will be back by September.
May and June Job Growth Were Revised Down by 103,000
While the job loss reported for July may not be a big deal, the downward revisions for the prior two months are. Taken together with the July number, job growth averaged just 20k a month over the last three months. Even adding in the 45,000 education jobs for July, the average is still just 35k a month.
That might still be fast enough to keep unemployment from rising in a zero-immigration economy, but it is considerably slower than what we were looking at before we got the July data.
Perhaps more concerning than the absolute number is that virtually all the job growth is in the health care and social services sectors. Growth over the last three months in these sectors has averaged 33k, more than 90% of total, even adjusting for the July education drop.
Outside of these sectors, there is very little growth anywhere. Manufacturing has been creating some jobs recently, but the average is just 5k a month. Construction is a bit better with an average of 10k. The mining sector, which includes oil drilling, has actually lost a small number of jobs since April. Even the restaurant sector is losing jobs.
There is nothing wrong with jobs in health care and social assistance. It is important work and many of these jobs are highly skilled and well-paid. It just doesn’t make for a very balanced economy.
Wage Growth Is Slowing and Not Keeping Pace with Inflation
The year-over-year increase in the hourly wage was just 3.2% in July. We have been seeing a gradual slowing from a pace of more than 4.0% in 2024. If we just take the annualized rate for the average of the last three months (May-July), compared with the prior three months (Feb-April), the story is even worse. Wage growth has slowed to 2.5%.
This raises three big issues. First, it is hard to reconcile this sort of slowing in wage growth with a strong labor market story. We can be happy that the unemployment rate is just 4.1%, which is very low by historical standards, but if workers find it easy to get jobs, it’s hard to see why wage growth would slow even in the face of rising inflation.
The second is that workers are now falling behind inflation. That means that families, who for some time have been telling pollsters and politicians that they feel financially stretched, are likely feeling even more stretched now. This is not an economy that is working for them.
Finally, an economy with near-zero job growth and negative real wage growth is not going to be driven by the growth in workers’ consumption. Insofar as we see consumption growth, it is going to come from high-income households spending based on stock gains and capital income. That is not a pretty picture, nor a well-balanced economy.
Employment Rates for Prime Age Men Have Fallen Sharply Since May
In 2025, there was a sharp deterioration in the labor market for disadvantaged groups, notably Black workers and young (ages 20-24) workers. That has been reversed this year. The unemployment rate for these groups has fallen back almost to its 2024 level. However, the situation seems to have deteriorated sharply in the last two months for prime age (ages 25-54) men.
Their employment-to-population ratio (EPOP) fell 0.9 percentage points (PP) in June to 85.7%. It recovered only 0.1 PP of this fall in July, leaving the rate 0.8 PP below the May level. The monthly data are highly erratic, so it is possible that we will still see this decline partially reversed in August or September, but the data we have makes it look like the labor market has deteriorated noticeably for these workers in the last two months.
In the same vein, the EPOP for college grads fell by 1.0 PP to 68.8% in July. To be clear, college grads are doing better than those with less education by almost every measure, but their situation does seem to have gotten worse recently. Also, the EPOP for native-born workers is down 0.9 PP year-over-year, while it is unchanged for foreign-born workers.
Unemployment Duration Has Gotten Shorter, and That May Not be a Good Thing
All the duration measures of unemployment showed improvement in July. The average duration of unemployment spells fell from 25.5 weeks to 24.9 weeks. The median duration declined from 11.0 weeks to 10.5 weeks. And the share of long-term unemployed (more than 26 weeks) fell from 27.3% to 25.5%.
This could all be good news, since it looks like people are less likely to spend a long period of time looking for work. But there is another possible story. The long-term unemployed may be giving up looking for work and dropping out of the labor market. That would not be a good story. This would also be consistent in the decline in the percentage of unemployment due to permanent layoffs from 35.5% to 34.2%.
That would be a considerably worse story about the labor market. But before hitting the panic button, remember these data are highly erratic, and these relatively small changes can easily be reversed next month.
On Net, not a Terrible Story, but Definitely Cause for Concern
If we recognize the seasonal adjustment issue with public school employment, it’s hard to say a job report with a 0.1 PP decline in the unemployment rate to 4.1% is a horror story. But the report definitely does point to problems, most notably slower wage growth and the huge concentration of job growth in a single sector.
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