Jobs Numbers are Weak, but the Labor Market Doom is Overdone

Friday’s jobs report produced an obvious headline: the economy lost 23,000 jobs in July.

That is not a good number. Employment growth has undoubtedly been slow in recent months, and downward revisions to previous estimates suggest that the labor market has been weaker than we initially thought. There is a good chance we will hear much more about revisions in the coming weeks, particularly when the annual benchmark revision covering April 2025 through March 2026 is released later this month.

Those benchmark revisions can be quite substantial. Last year, the annual benchmark revision reduced estimated payroll gains by 911,000 jobs. The year before that, payroll employment was revised down by another 818,000.

So, skepticism about the monthly payroll numbers is warranted, but skepticism is not the same thing as panic. Much of the commentary surrounding the labor market has drifted toward the idea that conditions are deteriorating rapidly. The broader data do not support that conclusion, at least not yet.

Start with the unemployment rate. At 4.1 percent, unemployment remains low by almost any reasonable historical comparison. The average unemployment rate from 2015 through 2026 is roughly 4.6 percent. Going back to 1995, the average is about 5.5 percent.

Perhaps that comparison is unfair because it includes major recessions. Even if we remove 2009, 2010, 2011, and 2020, years heavily affected by the Great Recession and the pandemic, the average is still around 5 percent. Today’s unemployment rate of 4.1 percent does not signal a labor market in crisis.

There is also an important wrinkle in July’s employment decline. The largest one-month reduction came from government employment, where payrolls fell sharply because local government employment declined by 57,000.

Much of that appears to have come from teachers leaving payrolls during the summer months. Teachers typically tend to get laid over the summer break months. That is hardly evidence of a sudden collapse in underlying labor demand. If anything, it raises another question about how well seasonal adjustment is capturing unusually large changes in education employment. Perhaps this will be revised in future reports.

Federal employment is a separate story. Federal government employment has fallen by roughly 326,000 workers over the past 18 months as the administration has pursued reductions in the federal workforce. Yet private employment has increased by roughly 877,000 workers over the same period. That works out to just under 50,000 additional private-sector jobs per month.

The ADP payroll data tell a similar story. In the year from June 2025 through June 2026, private nonfarm employment increased by approximately 743,000 jobs, or around 62,000 per month. Again, those are not spectacular numbers, but they are also not recession numbers.

Measures of labor market slack provide another useful reality check. In July, fewer than 7 million unemployed workers were actively looking for work. In June, employers reported almost 7.4 million job openings. In other words, there were still more available jobs than unemployed people looking for work.

The labor market has cooled considerably from the extraordinary conditions of 2021-2023 when employers were desperate for workers and job openings were running at historically unusual levels. But moving away from an overheated labor market is not the same thing as falling into an economic downturn.

There is, however, one part of the report that deserves considerably more attention. Labor force participation has fallen to 61.4 percent, its lowest level outside the pandemic disruption in roughly half a century. That is a much more troubling development.

Before the pandemic, female labor force participation was around 58 percent. It is now roughly 56.4 percent. Male participation has declined from about 69.2 percent to 66.8 percent.

The encouraging news is that prime-age participation remains relatively strong and is slightly above its pre-pandemic level. The deterioration in labor force participation is concentrated much more heavily among older Americans.

Among workers age 55 and older, labor force participation stood at roughly 40.3 percent before the pandemic. By early 2025, it had fallen to around 38.4 percent. As of July, it is only 36.9 percent. That is a major change, and it illustrates why focusing entirely on monthly payroll gains and losses can obscure the more interesting economic story.

The United States does not currently appear to have a massive shortage of jobs. Unemployment is low, job openings remain elevated relative to the number of unemployed workers, and the private sector is still adding workers. What we increasingly have is a shortage of people participating in the labor market.

Some of that reflects demographics. An aging population will naturally push aggregate participation lower as more Americans enter retirement. But the magnitude of the decline among older workers raises important questions about retirement incentives, health, disability programs, taxes, savings, and whether the pandemic permanently altered work decisions for millions of Americans.

Those questions matter much more for long-run economic growth than whether payroll employment rose or fell by 20,000 jobs in a particular month.