Labor Force Participation Rate Falls To Lowest In 50 years

The US unemployment rate fell to 4.2% in June largely because 720,000 people left the labor force, pushing participation to 61.5%. Excluding the Covid-era jobs market, that’s the lowest participation rate since June 1976. The decline in the labor force marks a “massive exodus” driven by multiple factors, said Mike Reid, head of U.S. economics at RBC. “The unemployment rate fell to 4.2% as both the number of unemployed workers and the size of the labor force pulled back,” Reid wrote in a post-report commentary. “This may well be a story of retirements but could also be a story of prior job seekers dropping out of the labor force.”

[…] [T]he rolls of those counted as not in the labor force, a group that includes the unemployed and those not looking for work, jumped by 832,000. And while the establishment survey, which counts jobs filled, showed growth for the month of 57,000, the survey of households, which counts the actual level of those working, tumbled by 507,000. On a year-over-year basis, the labor force is down by just over 1 million, while the level of the employed also has fallen by 1.06 million and the ranks of the unemployed have risen by 40,000. The employment-to-population ratio slipped to 59% in June, the lowest since October 2021. All that has happened while the unemployment rate has risen by just one-tenth of a percentage point to 4.2%.

The drop in participation is sometimes attributed to a shrinking immigrant population and retiring baby boomers and Gen Xers. However, in June the biggest plunge came from what is defined as “prime age” workers, or those between the ages of 25 and 54. That rate fell 0.6 percentage point to 83.3%, its lowest since December 2023. “Looking at the statistics now, that argument doesn’t hold up so well,” North said of the retirement and immigration rationale. “I hate to use the word ‘alarming,'” he added, but said the numbers are cause for concern.