Now, here’s our labor market insights for July 2026, written by Matt Duffy:
Last month, I made the bold prediction that the labor market was improving (Labor Market Insights – June 2026). I’ll admit, I spent the past few weeks waiting for June’s data to humble me with a well-placed slap across the face. Instead… nothing. No slap. So, either I was right, or the labor market is just waiting until July to embarrass me.
The data can be interpreted a hundred different ways, but it’s summer, the World Cup is in full swing, and I’m choosing to lean into some cautious optimism. So, this month, I’m sticking with my – tempered – positive outlook.
Here’s what we’ll cover:
- A quick recap of June’s labor market data.
- Why I still believe the labor market is gradually improving.
- How AI may actually be helping create a healthier, more sustainable labor market.
June Labor Market Summary
If the June labor market were a World Cup match, it would be one of those oddly beautiful 0-0 draws where nobody scores, everyone claims it was “strategic,” and the announcers spend 90 minutes praising defensive shape because there is very little else to talk about. Employers added 57,000 jobs in June, well below expectations, while April and May payrolls were revised downward by a combined 74,000 jobs. Not exactly a bicycle kick into the top corner.
But like the World Cup, the labor market is still a massive event bringing people together: employers, workers, economists, recruiters, compensation teams, and anyone brave enough to open the BLS report before coffee. Everyone is watching the same field, trying to figure out whether this is a temporary lull, a tactical reset, or the part of the match where someone pretends to be injured for six minutes.
The unemployment rate dipped to 4.2%, but not because hiring suddenly found the back of the net. Instead, fewer people participated in the labor force, helping push the rate lower. Job growth remained concentrated in healthcare, private education, and professional & business services, while leisure & hospitality surprisingly lost jobs – despite summer travel, major events, and enough soccer fans to justify nachos as an economic indicator.
The bigger story is that the labor market remains stable, but very cautious. Hiring is slow, layoffs are low, quits are limited, and workers are mostly staying put. Employers are not aggressively expanding, but they are also not cutting headcount in a meaningful way. In World Cup terms, they are protecting the lead (even though nobody is entirely sure who scored first).
Wage growth also continues to complicate the picture. Average hourly earnings rose around 3.5% year over year, while inflation is running closer to 4.2%, meaning workers are once again losing purchasing power. That makes compensation conversations harder, especially for employees who feel like their paycheck is playing defense while prices are pressing high.
Overall, June showed a labor market that is not collapsing, but also not exactly sprinting down the sideline. It is controlled, cautious, and waiting for a clearer opening. The good news is that the match is not over. Layoffs remain low, some sectors are still adding jobs, and if broader hiring starts to return, the second half could get a lot more interesting.
Why the Labor Market Is Improving
The headline jobs number wasn’t exciting, but the story underneath is more encouraging. This continues to look like a labor market that’s slowing into balance, not sliding into recession.
Perhaps the biggest positive is that layoffs remain remarkably low. Employers may not be hiring aggressively, but they also aren’t showing much interest in reducing headcount. Temporary employment increased again in June – a leading indicator that often improves before broader hiring – and professional & business services posted one of its strongest months in years.
It’s also important to keep today’s economy in perspective. Because labor force growth has slowed, economists estimate the U.S. now only needs about ~40,000 new jobs each month to keep pace with population growth. By that measure, June’s 57,000 jobs still represent expansion, even if it won’t earn any standing ovations.
The best way to describe employers today is cautious rather than fearful. They’re keeping the team together, making selective hires, and waiting for greater economic clarity before stepping on the gas.
AI + The Labor Market
If there’s one trend that could have a bigger impact on the labor market than interest rates, it’s AI – and so far, it isn’t following the script many expected.
A recent study of more than 21,500 U.S. companies found that organizations making the largest AI investments increased employment by roughly 10%, with entry-level hiring growing even faster. Rather than replacing workers outright, AI appears to be helping companies become more productive, expand operations, and hire across functions like sales, customer service, operations, and administration.
AI is also fueling a new wave of entrepreneurship. LinkedIn reports entrepreneurial activity is up 70% year over year, driven largely by Gen Z professionals using AI tools to launch businesses, freelance, create content, and build multiple income streams. Apparently, if the perfect job doesn’t exist, many are deciding to build one instead.
For employers, the takeaway is clear: AI isn’t simply about cutting costs, it’s becoming a competitive advantage. Companies that invest thoughtfully in AI while helping employees develop AI skills will likely be in the best position to grow. And for workers, learning how to use AI may soon become as fundamental as knowing how to use Excel, only hopefully with fewer mysterious formulas that somehow keep returning #VALUE!.
By the Numbers:
- New Jobs – The U.S. added 57,000 jobs in June
- April and May payrolls were revised downward by a combined 74,000 jobs.
- Job growth remained concentrated in private education & health services (+69,000) and professional & business services (+36,000), while leisure & hospitality (-61,000) posted the largest decline.
- The ongoing cynical question is this – how well-paying those roles? Are these new jobs tracking with inflation?
- Unemployment dropped to 4.2%, down from 4.3% the previous month
- The decline was driven by lower labor force participation rather than stronger hiring.
- Job openings remain unchanged at 7.6 million, up from 6.9 million two months ago
- The highest level in nearly two years
- The highest increase was in the number of job openings in wholesale trade (+71,000)
- Hires increased slightly to 5.2 million, up from 5.1 million the previous month, and down from 5.6 million two months ago
- The hiring rate increased to 3.3%, up from 3.2% the previous month – a good sign, but still historically low
- Layoffs remained unchanged at 1.7 million, down from 1.9 million two months ago
- The layoff rate remains at 1.1%
- Quits increased slightly to 3.1 million, up from 3 million the previous month
- Quits, which are seen as a measure of worker confidence in the ability to change jobs and find another one continues to remain very low
- Total separations increased slightly to 5.1 million, up from 5 million the previous month
- Total separations were little changed in all industries
- Jobs per available worker sits at 1:1
- Up from 0.95 two months ago
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