Flash Report: Unemployment, Payrolls Both Drop in July
KEY TAKEAWAYS
- The U.S. unemployment rate fell from 4.2% in June to 4.1% in July, a level that remains in line with its 12-month average. More precise data show the rate dropped from 4.189% to 4.090%.
- From an employment flows perspective, July’s modest decline in unemployment was driven primarily by fewer people leaving or losing their jobs relative to the June change.
- Nonfarm payroll employment contracted in July—against expectations—by 23,000 jobs.
Unemployment
July 2026
4.090%
Precise Rate
Unemployment again ticked down in July, with the headline rate coming in at 4.1%, its lowest level since June 2025. (See the FRED chart above.) The July rate was near its average over the past 12 months.
Total nonfarm payrolls shed an estimated 23,000 jobs in July, accompanied by downward revisions to prior months. June’s gain was revised lower by 37,000 jobs (from 57,000 to 20,000), and May’s gain was revised lower by 66,000 jobs (from 129,000 to 63,000).
Key labor market indicators—payroll employment growth, employment-to-population ratio and the labor force participation rate—have trended downward in 2026, suggesting a potential weakening of the overall labor market. Mechanically, the unemployment rate fell in July because participation in the labor force declined faster than employment measured in the household survey component of the jobs report.Because unemployment is calculated by dividing the number of unemployed people into the total labor force (those either employed or actively looking for work), if more people stop looking for work than lose their jobs, the rate will fall, all else being equal. Nevertheless, most labor market indicators have remained healthy from a historical perspective.
Next, the analysis takes a deeper look at how estimated flows into and out of unemployment during July affected the overall unemployment rate.
DATA HIGHLIGHTS
- The decline from June in the unrounded unemployment rate was nearly identical to the 0.1 percentage point decrease in the headline rate.
- A drop in the number of people leaving or losing their jobs, compared with this dynamic’s contribution in June, was the main factor behind the change in unemployment.
| Average Monthly Change in Unemployment Rate (Percentage Points) |
People Losing or Leaving Their Jobs and Becoming Unemployed |
Unemployed People Finding Jobs |
People Previously Not in the Labor Force Who Are Now Seeking Work |
Unemployed Workers Leaving the Labor Force (e.g. Discouraged Workers) |
|
|---|---|---|---|---|---|
| July 2026 | -0.10 | +0.74 | -0.99 | +1.15 | -1.01 |
| Last 3 Months | -0.08 | +0.85 | -1.04 | +1.10 | -1.01 |
| Last 12 Months | -0.03 | +0.91 | -1.06 | +1.12 | -1.01 |
| SOURCES: Bureau of Labor Statistics and St. Louis Fed Research staff’s calculations. | |||||
| NOTES: Average changes over the last 12 months exclude October and November, for which data were unavailable. Data are seasonally adjusted. The overall change is based on the precise unemployment rate for these periods; for example, the unemployment rates were 4.0901% in July and 4.1888% in June. The flow components into and out of unemployment add up to the change in unemployment with a negligible residual. See Maximiliano Dvorkin and Serdar Ozkan’s St. Louis Fed On the Economy blog post “The Recent Ins and Outs of Unemployment: Using Flows to Study Labor Market Dynamics” for more information about this method. | |||||
In contrast to the labor market indicators discussed above, unemployment flow dynamics overall showed no sign for concern. Job separations—people losing or leaving employment—contributed less to the change in unemployment in July than they did during June. This difference accounted for most of the decline in July’s unemployment rate. The rate of job separations and the rate of people finding jobs—another unemployment flow component—were below their recent averages. (See the table above.)
Note
- Because unemployment is calculated by dividing the number of unemployed people into the total labor force (those either employed or actively looking for work), if more people stop looking for work than lose their jobs, the rate will fall, all else being equal.
Citation
ldquoFlash Report: Unemployment, Payrolls Both Drop in July,rdquo St. Louis Fed On the Economy, Aug. 7, 2026.
This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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