U.S. economy surprisingly lost 23,000 jobs in July

America's employers unexpectedly shed 23,000 jobs in July, while the unemployment ticked down to 4.1%, the government said on Friday.

The report shows the first job decline since February, potentially hinting at bigger cracks in the labor market than previously known.

Economists anticipated a gain of 87,000 jobs in July.

The key factor of the surprising job loss was local education — which shed 50,000 jobs last month alone — a sector that is susceptible to distortions from the seasonal adjustment process.

Job gains were weaker in previous months, according to new revisions. The economy added 20,000 jobs in June, 37,000 less than initially estimated. Gains in May were revised down by 66,000 to 63,000.

The July jobs report lands as many Fed officials have said they are more concerned about the outlook for inflation than the outlook for employment.

Policymakers are watching for signs of labor market cooling — including evidence that AI is contributing to slower hiring — but many say they do not see evidence of the kind of broad-based deterioration in hiring that would outweigh their concerns about inflation.

Futures markets see a Fed rate hike as slightly more likely than not, assigning a 54% probability to a September move, according to CME FedWatch.

"The economy appears to be performing well with the notable exception of inflation …. With the labor market in balance and growth resilient, my primary concern is inflation," Kansas City Fed president Jeff Schmid said in a speech this week.