Americans participating in the workforce fell to its lowest level outside the COVID-19 pandemic in 50 years during June, according to data released by the U.S. Bureau of Labor Statistics July 2, signaling that a declining unemployment rate may reflect fewer people looking for work rather than stronger hiring, CNBC reports.
The unemployment rate edged down to 4.2%, its lowest level in a year. However, the labor force participation rate — which measures the share of the working-age population that is employed or actively seeking work — declined to 61.5%, its lowest reading since March 2021. Excluding the pandemic period, the participation rate was the lowest since 1976, according to the Labor Department.
The report suggests the labor market is slowing as more Americans exit the workforce. During June, the labor force declined by 720,000 people, while the number of people classified as outside the labor force increased by 832,000. Employers added 57,000 jobs, according to the establishment survey, but the household survey showed the number of employed Americans fell by 507,000. The employment-to-population ratio also slipped to 59%, its lowest level since October 2021.
Mike Reid, head of U.S. economics at RBC, told the outlet that the report points to multiple factors behind the decline.
“The unemployment rate fell to 4.2% as both the number of unemployed workers and the size of the labor force pulled back. This may well be a story of retirements, but could also be a story of prior job seekers dropping out of the labor force.”
While retirements and lower immigration have often been cited as reasons for declining workforce participation, the June data showed the steepest decline among prime-age workers between 25 and 54 years old. Their participation rate fell 0.6 percentage points to 83.3%, the lowest level since December 2023, according to the Labor Department.
Dan North, senior economist for North America at Allianz, said the participation rate provides a clearer picture of labor market conditions than the unemployment rate.
“What’s an important development is the participation rate, and this is a big leg down in one month, and over the past year, it’s a pretty big leg down. I think this is a more important number,” she told the outlet.
North said the latest figures also challenge common explanations for the decline.
“Looking at the statistics now, that argument doesn’t hold up so well.”
Some economists cautioned that June’s data could reflect monthly volatility, particularly because of losses in the leisure and hospitality sector. Still, Heather Long, chief economist at Navy Federal Credit Union, said the broader trend warrants attention.
“It was shocking to see 720,000 people stop looking for work entirely, and the hospitality sector shed jobs. It’s a better job market than a year ago, but opportunities are limited.”
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