WASHINGTON — U.S. employers unexpectedly cut 23,000 jobs in July, and the Labor Department revised down May and June payrolls by a combined 103,000, according to figures released Friday that push the outlook for Federal Reserve rate policy back toward holding steady. The unemployment rate slipped to 4.1 percent, but only because 264,000 Americans left the workforce last month, the department said.

The report complicates the case that three Fed officials made last week for lifting interest rates to bring inflation back toward the central bank's 2 percent target. It also delivers a political blow to President Trump three months before midterm elections that will decide control of Congress, and complicates a hiring backdrop that had drifted through 2026 under what economists have taken to calling a "no hire, no fire" regime.

What the numbers say

Local public schools cut 50,000 jobs in July, restaurants and bars 26,000 and retailers 19,000, the Labor Department reported. Construction added 22,000 jobs, factories added 5,000 and health care — the main engine of hiring this year — added 22,000. Forecasters polled by the data firm FactSet had expected employers to create about 95,000 jobs.

The dip in the jobless rate to 4.1 percent from 4.2 percent came alongside a drop in the labor-force participation rate to 61.4 percent, the lowest reading since February 2021. Average hourly pay rose 3.2 percent from a year earlier, the smallest annual gain since May 2021.

"We can’t really put lipstick on a pig here," said Daniel Zhao, chief economist at the jobs website Glassdoor. "This is not a great report for July."

Heather Long, chief economist at Navy Federal Credit Union, called the release "a bleak jobs report" and said, "The U.S. labor market is stalling again and that is going to make the Federal Reserve’s job harder and life for job seekers rough."

The Fed calculus

The Federal Open Market Committee has held its benchmark rate steady at its last five meetings. Three members dissented in favor of a hike at the July meeting; nine voted to hold. The July payroll figures give the majority a fresh argument.

"The Fed has to consider the health of the job market as they debate whether a hike is justified," Zhao said. "The softness in today’s report is going to have to give the Fed a little bit of pause."

Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said the unexpected July losses could ease pressure to raise rates at the Sept. 15-16 meeting, though she cautioned that upcoming inflation prints still matter: "If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet calls" for rate increases.

Fed Governor Lisa Cook, quoted by CBS News, said, "Although the hiring rate is low, the unemployment rate remains steady because layoffs are also low." The four-week average of initial jobless claims dipped below 200,000 for the week ending Aug. 1 — the first time since October 2022.

Who is leaving

The labor-force exit is not evenly distributed. Women lost 32,000 jobs in July, accounting for all of the month's net decline, though they gained 321,000 jobs over the past 12 months while men lost 5,000. Nic Puckrin, a markets expert and former Goldman Sachs analyst, told CBS News, "Hiring has gone into reverse — the economy actually shed jobs last month." Elise Gould, senior economist at the Economic Policy Institute, said, "People leave the labor force because they don't see opportunities."

So far this year employers have added 61,000 jobs a month, up from 9,700 in 2025 but well below the 2023-2024 average of 166,000. Researchers at the Federal Reserve Bank of San Francisco wrote this week that "Instead of being pulled in, the pipeline into employment is shrinking such that the recovery is no longer reaching workers at the margins," and flagged the possibility of "early signals of broader labor market deterioration."

The administration's read

The White House pushed back on the headline number. "The Trump industrial resurgence is on schedule," spokesman Kush Desai said, adding that "Manufacturing and factory construction jobs grew again in July even as government payrolls continued to significantly shrink." Economists cited by the Associated Press noted the outsized drop at local public schools may have been a seasonal-adjustment artifact and that private payrolls continued to grow. No right-leaning news outlet appeared among today's wire sources; the administration's rebuttal, as carried by AP, was the fullest defense of the figures available at press time.

The next Fed meeting begins Sept. 15.