The U.S. labor market lost 23,000 nonfarm payroll jobs in July, the Bureau of Labor Statistics reported Friday, sharply missing consensus forecasts that had anticipated a gain of approximately 80,000 to 90,000 positions. The decline marks the second month of outright payroll losses recorded this year. Adding to the shortfall, the government revised down combined job growth figures for May and June by 103,000 — part of the BLS's regular process of updating preliminary estimates as more complete payroll records become available in subsequent months. The revisions brought the average monthly job creation over the past year to just 34,000 — well below the pace economists regard as healthy for a growing economy. Many economists consider a baseline of roughly 100,000 to 150,000 new jobs per month necessary just to absorb new labor market entrants and keep pace with population growth.

The unemployment rate edged down to 4.1% from 4.2%. However, virtually every economist who weighed in on Friday's report agreed that the decline was not an encouraging sign. The rate fell not because more workers secured employment, but because the labor force contracted by an estimated 264,000, as workers — particularly those aged 55 and older — exited the workforce entirely.

"It's hard to find many bright spots in today's jobs report," wrote Cory Stahle, senior economist at the Indeed Hiring Lab, in a note titled "Unexpected Turbulence." Using an extended aviation metaphor, Stahle observed that the economy has "descended from the near-stratospheric heights of 2021 and 2022" and is "facing turbulence at lower altitudes." He concluded: "Don't put too much stock in a single report, but don't ignore the fact that the plane is starting to shake as the labor market looks to be entering a rough patch."

Technical Factors Behind the Miss — and Why Comfort Remains Elusive

Several economists identified a technical factor behind much of July's headline weakness: a 53,000 decline in government employment, driven almost entirely by local government education payrolls — the type of anomaly that tends to self-correct by autumn.

"This looks like a wonky seasonal adjustment fluke," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. Excluding that decline, private payrolls actually rose by 30,000 in July, Adams noted, describing the figure as "slow, but not a crisis." Even so, the monthly average has been a sluggish 20,000 since May and 61,000 since the start of the year. "While these data are disappointing, they are still better than the economy's 10,000 job per month average in 2025."

Jeffrey Roach, chief economist at LPL Financial, characterized the report as "complicated," noting that the education-sector drag obscured a labor market that is not in crisis but rather gradually losing altitude. "If we look at weekly employment data, we see minimal stress in the labor market despite the negative payroll print for July," Roach said, calling it "an orderly slowdown."

Jeff Schulze, head of economic and market strategy at ClearBridge Investments, echoed that assessment, noting the education drag "is a typical seasonal development" tied to the end of the school year. This pattern is usually reversed in the fall, he observed, "suggesting that underlying job creation remained modestly positive."

The Turbulence Economists Are Actually Concerned About

Not all analysts were reassured by the technical explanations. Chris Zaccarelli, chief investment officer at Northlight Asset Management, called the report "a game changer" for how markets and the Federal Reserve should be assessing risk. "Before today, many were expecting that the Fed had no choice but to raise rates in order to fight stubbornly high inflation, because the job market was so strong," he said. "But that clearly isn't the case anymore."

Adams highlighted a generational dimension to the turbulence that may prove more persistent than a single month of noise. Unemployment among workers aged 20 to 24 with no prior work experience — a proxy for this year's graduating class — stood at 242,000, only marginally improved from a year earlier. By his calculations, the last two years have recorded the highest unemployment levels for recent graduates since 2016.

Thomas Ryan, senior North America economist at Capital Economics, identified another quiet warning embedded in the data: average hourly earnings growth decelerated to 3.2%, the slowest pace since May 2021 — a signal that "the falling unemployment is not a genuine indication that the labor market is tightening."

Charlie Ripley, senior investment strategist at Allianz Investment Management, went further in reframing the stakes for policymakers. "The magnitude of the payroll miss suggests the labor market may be losing momentum and can no longer be considered the pillar of strength," he said. "This report squarely puts the spotlight back on the employment side of the Fed's mandate." Under its dual mandate set by Congress, the Federal Reserve is charged with pursuing both maximum employment and stable prices — meaning that softening labor market data carries direct implications for interest rate policy alongside the inflation outlook.

Nearly every economist connected Friday's figures to the Federal Reserve's September meeting, and most agreed the data affords the Fed room to hold rates steady — though inflation figures scheduled for release next week could complicate that outlook. The August employment report, due in early September, will serve as the final major labor market reading before that meeting.

For now, the prevailing sentiment among Wall Street economists is less alarm than vigilance. As Stahle put it, the labor market is not crashing — but after a smooth multiyear ascent, it has encountered its first genuine patch of unexpected turbulence, and the plane is already flying close to the ground.

This story was originally featured on Fortune.com.