Jobs and unemployment sent conflicting signals, but fewer people were actively looking for work.

The U.S. labor market shed jobs in July, an unexpected contraction likely to renew questions about the economy’s fundamental strength at a time when it is also facing elevated inflation.

The Labor Department’s July jobs report showed that the economy lost 23,000 last month, a big shortfall versus the gain of 83,000 that economists surveyed by The Wall Street Journal had expected. Also, revisions to May and June payrolls numbers showed that the economy added 103,000 fewer jobs in those two months.

These figures suggest that hiring slowed markedly in the second half of the summer and that the pace of job creation has dipped below the level that would sustain a robust labor market. While unemployment rates ticked lower, the overall labor force participation remained muted, indicating that many workers may be discouraged or satisfied with their current roles.

Policymakers will need to monitor whether this contraction signals a broader slowdown, especially in the context of rising inflation and the Federal Reserve’s monetary stance. The coming months will test whether the labor market can rebound or if the economy faces a prolonged period of subdued growth.