U.S. job growth slowed much more than expected in July and the unemployment rate rose, fueling fears of a broader economic slowdown, the Labor Department reported Friday.

Nonfarm payrolls rose by just 114,000 in the month, below the downwardly revised 179,000 in June and the Dow Jones estimate of 185,000. The unemployment rate rose slightly to 4.3%, its highest level since October 2021.

Average hourly earnings, a closely watched gauge of inflation, rose 0.2% on the month and 3.6% from a year earlier. Both figures were below forecasts of 0.3% and 3.7%, respectively.

Stock market futures extended losses after the report, while Treasury yields plunged.

The labor market had been a pillar of economic strength but has recently shown some signs of trouble, with July’s payrolls increase well below the 12-month average of 215,000.

“Temperatures may be high across the country, but there is no summer heat wave for the labor market,” said Becky Frankiewicz, president of staffing agency ManpowerGroup. “With the widespread cooling, we have lost most of the gains we had made in the first quarter of the year.”

On a sector-by-sector basis, health care again led job creation, adding 55,000 jobs to payrolls. Other sectors that saw significant gains included construction (25,000), government (17,000) and transportation and warehousing (14,000). Leisure and hospitality, another sector that has gained jobs in recent years, added 23,000 jobs.

The information services sector recorded a loss of 20,000 people.

While the establishment survey used for the headline payrolls figure was disappointing, the household survey was even more so, with growth of just 67,000, while the ranks of the unemployed increased by 352,000. The participation rate as a share of the working-age population rose slightly to 62.7%.

The report adds to the mixed signals that have emerged lately about the economy, with financial markets nervous about how the Federal Reserve will respond.

While markets on Wednesday cheered Fed indications that a rate cut could come as soon as September, that quickly turned to concern when Thursday’s economic data showed an unexpected rise in jobless claims and further weakness in the manufacturing sector.

That triggered the worst selloff of the year on Wall Street and revived fears that the Fed may be waiting too long to begin cutting interest rates. Moderating wage increases could help policymakers feel more confident that inflation is returning to their 2% target.

The rising unemployment rate brings into play the so-called Sahm rule, which states that the economy is in recession when the quarterly average of the unemployment level is half a percentage point higher than the 12-month low. In this case, the unemployment rate was 3.5% in July 2023 before beginning its gradual rise. The quarterly average of the unemployment rate rose to 4.13%.

“The latest labor market picture is consistent with a slowdown, not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. “However, early warning signs suggest further weakness.”

Roach noted that the ranks of those working part-time for economic reasons grew to 4.57 million, an increase of 346,000 to the highest level since June 2021.

An alternative measure of unemployment that includes discouraged workers and those working part-time for economic reasons rose 0.4 percentage points to 7.8%, the highest level since October 2021.

Long-term unemployment also rose, with 1.54 million people reporting being out of work for 27 weeks or more, the highest figure since February 2022.

Wall Street had been bracing for modest gains following the July payrolls report, partly because of concerns about growth but also because of residual impacts from Hurricane Beryl. The storm severely damaged parts of Texas, including the Houston metropolitan area.

Despite some anxiety about the state of economic growth, Federal Reserve Chairman Jerome Powell on Wednesday expressed confidence in the “solid” economy and said easing inflation data is boosting confidence that the central bank can cut soon.

Markets have already priced in a rate cut of at least a quarter-point at each of the Fed’s three remaining meetings this year. The likelihood is growing that the Fed will go even further than traditional quarter-point reductions.

“While the labor market has remained remarkably resilient over these past two years of elevated interest rates, it is important for the Federal Reserve to anticipate any further slowdown in the labor market by proceeding with its expected rate cut in September,” said Clark Bellin, chief investment officer at Bellwether Wealth.

Correction: Average hourly earnings were forecast to increase by 0.3% for the month. A previous version incorrectly stated the percentage.