WASHINGTON — The American economy suffered an unexpected setback in July as hiring fell sharply and the unemployment rate rose for the fourth straight month with raised interest rates taking a toll on businesses and households.

Employers added just 114,000 jobs in July – 35 percent fewer than expected – and unemployment, now at 4.3 percent, is the highest since October 2021, the Labor Department reported Friday.

“Things are deteriorating quickly,” the chief economist at ZipRecruiter, Julia Pollak, said.

The sharp downturn in American hiring shook financial markets around the world.

The sturdy American economy has been a key driver of global economic growth and the American jobs market has been the fuel, giving Americans the confidence and financial wherewithal to keep spending.

The unemployment rate’s jump to 4.3 percent in July crossed a tripwire that historically has signaled recession — though economists say the gauge probably is not reliable in the post-pandemic economy.

Hiring may have been disrupted by Hurricane Beryl, which slammed the Texas economy last month. And ZipRecruiter’s Ms. Pollak noted employers have cut employee hours and made temporary layoffs — suggesting that they are optimistic a rate cut may turn things around.

“They are just slowing hiring and putting people on temporary layoff, furlough,” Ms. Pollak said. “They want to get back to business. They see lots of opportunities to expand. They they just need rates to be (lower).”

The Federal Reserve said this week that it needed to see more evidence inflation is moving toward its 2 percent target before it cuts rates. Chairman Jerome Powell characterized the American job market as healthy despite calls for the central bank to begin lowering its benchmark rate, which stands at a 23-year high.

Hourly wages rose just 3.6 percent since July 2023, the smallest year-over-year gain since May 2021, and another sign that inflation could be heading closer to the Fed’s target.

July job gains were concentrated in a few industries. Healthcare and social assistance firms added 64,000 jobs last month, accounting for 56 percent of hiring. Restaurants, hotels and bars added nearly 26,000 jobs.

Labor Department revisions, however, clipped 29,000 jobs from May-June payrolls. This year, the economy has generated nearly 203,000 jobs a month, solid but down from 251,000 last year, 377,000 in 2022, and a record 604,000 in 2021, when the job market roared back from pandemic lockdowns.

The economy is weighing heavily on voters’ minds ahead of the November presidential election. Many Americans have been unimpressed after three years of strong job gains, exasperated instead by high prices. Two years after inflation hit a four-decade high, price increases have eased but consumers are still paying 19 percent more for goods and services than they were in spring 2021.

The Labor Department reported Thursday that 1.88 million Americans were collecting unemployment benefits the week of July 20, most since November 2021 – and a sign that those without a job are likely struggling to find a new one.