Labor Market Softens in July While Services Activity Continues to Expand

Matthew Rubin Chief Investment Officer

 

1. The U.S. economy unexpectedly shed jobs in July, and downward revisions to prior months added to the softer picture, while the unemployment rate edged lower as more Americans exited the labor force.
2. Job openings fell in June, led by a pullback in healthcare, while hiring increased and layoffs held steady, reflecting a broadly stable labor market.
3. Services-sector activity continued to grow in July, with the ISM index edging up to 54.1, though the employment component slipped back into contraction territory and price pressures remained elevated.

 

1. A Softer Labor Market After Months of Steady Gains

The U.S. economy lost 23,000 jobs in July,¹ well below the consensus estimate of 83,000 jobs gained.² The result marked the first monthly job loss after a period of more stable hiring. Revisions to May and June payrolls lowered those months’ combined totals by an additional 103,000.¹

The unemployment rate edged down to 4.1% from 4.2% in June, but the improvement did not reflect stronger hiring.¹ Instead, more Americans stepped back from the labor force entirely, reducing the share actively seeking work and pulling the headline rate lower.¹

Consumer perceptions of the job market reflected the softer conditions. A July Conference Board survey found that 24.6% of respondents described jobs as plentiful, while 21.5% described them as hard to get, the least favorable split since 2021.³ Hiring and layoff activity both remained subdued, and nearly three in 10 unemployed workers had been searching for more than six months, the highest share in several years.¹

2. Job Openings Ease in June as Hiring Activity Picks Up

The number of job openings in the United States fell in June, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey. Total openings declined by 178,000 to 7.36 million,⁴ coming in slightly below the consensus forecast of 7.40 million.² The healthcare and social assistance sector led the decline, with openings falling by 147,000 during the month.⁴

Other measures of labor market activity remained broadly constructive. Total hires rose by 96,000 to 5.35 million, and the hires rate edged up to 3.4% from 3.3% in May.⁴ Layoffs and discharges held largely steady at 1.77 million, with the layoff rate unchanged at 1.1%.⁴ The overall job openings rate declined to 4.4% from 4.5% the prior month.⁴

Response rates to the JOLTS survey have declined in recent periods. Some economists cite this as a reason to interpret individual readings with a degree of care. Broadly, the data continue to reflect a labor market operating at a measured, steady pace.

3. Services Sector Expands for Second Consecutive Month in July

Activity in the U.S. services sector continued to expand in July, according to the Institute for Supply Management’s monthly survey of purchasing managers. The ISM Services Purchasing Managers’ Index rose to 54.1, up from 54.0 in June and above the 50.0 threshold separating growth from contraction.⁵ The result came in just below the consensus estimate of 54.5.²

The New Orders Index climbed to 57.2 in July, providing a constructive signal.⁵ The employment component of the index moved back into contraction territory after only one month of expansion, pointing to continued caution among service-sector employers.⁵ The Supplier Deliveries Index continued to reflect slower-than-normal performance, suggesting some lingering strain across supply chains.⁵

Price pressures remained a persistent theme. The Prices Paid Index exceeded 70 for the fourth time in five months, reflecting elevated input costs across the economy.⁵ Survey respondents continued to reference both tariff-related costs and the ongoing Middle East conflict as contributing factors, though both were cited much less frequently than in prior months.⁵

Looking Ahead

1. Consumer Price Index (CPI) – Wednesday, August 12^th
2. Producer Price Index (PPI) – Thursday, August 13^th
3. Retail Sales – Friday, August 14^th

Why It Matters

Wednesday’s CPI report will be the most closely watched release of the week. Headline inflation has held above 3% for much of the year, and the Fed’s most recent policy meeting concluded with three committee members dissenting in favor of a rate increase.⁶ A July reading that comes in above expectations could strengthen the case for tightening ahead of the September meeting. Thursday’s PPI data will provide additional context on the inflation picture by tracking producer-level price pressures, which often feed through to consumer prices in the months that follow. Friday’s retail sales report will round out the week with a read on consumer spending in July. With the labor market showing unexpected weakness last month, the data will offer an early signal of whether household spending has begun to soften in response.

For the period ending 8/7/26.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ U.S. Bureau of Labor Statistics, The Employment Situation, July 2026
² Bloomberg
³ The Conference Board, Consumer Confidence Survey, July 2026
⁴ U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS) News Release, June 2026
⁵ Institute for Supply Management, Services PMI Report on Business, July 2026
⁶ Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement, July 29, 2026

Disclosures

Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Personal Consumption Expenditures (PCE) Price Index measures the change over time in prices paid by U.S. consumers for goods and services. Published monthly by the Bureau of Economic Analysis (BEA), it is the Federal Reserve’s preferred measure of inflation and is used to assess progress toward the Fed’s 2% inflation target. The PCE Price Index differs from the Consumer Price Index (CPI) in its scope, weighting methodology, and treatment of certain healthcare expenditures; it generally registers a slightly lower inflation rate than CPI.
The Core Personal Consumption Expenditures (PCE) Price Index measures inflation in consumer spending after excluding food and energy prices, which tend to be more volatile. Published monthly by the Bureau of Economic Analysis (BEA) alongside the headline PCE, Core PCE is closely monitored by the Federal Reserve as a signal of underlying, persistent inflation trends. Because it strips out short-term price fluctuations in commodities and fuel, it is considered a more stable indicator of the direction of inflation over time.
The PCE Price Index family includes both the headline Personal Consumption Expenditures Price Index and the Core PCE Price Index, published monthly by the Bureau of Economic Analysis (BEA). The headline index captures price changes across all goods and services consumed by U.S. households; the core variant excludes food and energy to isolate underlying inflation trends. Together, these measures serve as the Federal Reserve’s primary inflation benchmarks in evaluating monetary policy, including decisions regarding the federal funds rate target.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000^® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average^® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_28