Employers unexpectedly cut 23,000 jobs in a sign of a wilting labor market

The U.S. labor market softened in July as employers cut 23,000 jobs. Construction companies and factories continued to add workers, but retailers and restaurants shed jobs. Joe Raedle/Getty Images North America hide caption

A report Friday from the Labor Department shows that employers cut 23,000 jobs last month, and job gains for May and June were revised sharply lower.

The unemployment rate dipped to 4.1%, but only because more than 260,000 people dropped out of the workforce.

It was the second month in a row that the monthly jobs tally came in weaker than forecasters had expected.

"We are increasingly hearing from workers that they are anxious about their job security and they are frustrated by the fact that they are stuck in roles that are not necessarily good for them," said Daniel Zhao, chief economist at the job search website Glassdoor. "And that's on top of workers who are not in a job right now and feel frozen out of the job market."

Glassdoor's worker confidence index slumped in July to a record low.

Restaurants and retailers cut thousands of jobs last month and local government also saw large job losses. Health care continued to add workers, but at a more modest pace than earlier in the year.

The softening job market may complicate the calculation for the Federal Reserve, which is also battling stubborn inflation. The Fed may be more cautious about raising interest rates at a time when the labor market appears less stable.