A recruiting sign is posted in the window of a Chipotle restaurant on June 5, 2026 in Los Angeles, California.
Justin Sullivan | Getty Images
On the surface, June’s decline in the unemployment rate provided some upside to an otherwise weak jobs report, but it was for all the wrong reasons.
Data from the Bureau of Labor Statistics on Thursday showed the unemployment rate fell to 4.2%, the lowest in a year, largely due to people leaving the labor force.
In fact, the number of working-age people employed or looking for work fell to 61.5%, the lowest since March 2021. Excluding the COVID-19 era job market, the labor force participation rate was the lowest in exactly 50 years.
Mike Reid, RBC’s head of U.S. economics, said the decline in the labor force represents a “massive exodus” due to multiple factors.
“The unemployment rate fell to 4.2% as both the number of unemployed people and the labor force retreated,” Reid wrote in commentary after the report. “This could very well be a story about retirement, but it could also be about a former job applicant dropping out of the workforce.”
End search
The bureau’s household surveys, which sample the number of participants, include a narrative in which the continued contraction of the workforce is potentially driven by the unemployed.
In June alone, the labor force, a measure of people who are employed or unemployed and looking for work, plummeted by 720,000 people. Similarly, the number of people not counted in the labor force (a group that includes the unemployed and those not looking for work) increased by 832,000.
And while the establishment survey, which counts the number of jobs filled, showed an increase of 57,000 people in the same month, the household survey, which counts the actual level of people working, fell by 507,000.
Compared to the previous year, the labor force has decreased by over 1 million people, while the number of employed people has also decreased by 1.06 million people, and the number of unemployed people has increased by 40,000 people. The employment-to-population ratio fell to 59% in June, the lowest level since October 2021. This happened while the unemployment rate rose by just a tenth of a percentage point to 4.2%.
“It’s not so much the unemployment rate that really affects me,” said Dan North, senior economist for North America at Allianz. “The key development is the participation rate. That’s down significantly in a month, and it’s down quite significantly over the past year. I think that’s the more important number.”
Not just retirees
The decline in participation can also be attributed to a decline in the immigrant population and the retirement of baby boomers and Generation Xers.
However, the biggest decline in June was among workers aged 25 to 54, defined as “in their prime”. The percentage decreased by 0.6 points to 83.3%, the lowest level since December 2023.
“When you look at the statistics right now, that argument doesn’t really hold up,” North said of the rationale for retirement and immigration. He added: “I don’t want to use the word ‘alarming’, but these numbers are a cause for concern.”
Indeed, some economists said June’s numbers look insane. Specifically, it cited a significant decline in the number of leisure and hospitality workers as a sign that the data may be noisy.
But the number of participants is part of a continuing trend.
“It was shocking that 720,000 people stopped looking for work altogether, and that the service industry shed jobs,” wrote Heather Long, chief economist at Navy Federal Credit Union. “The job market is better than a year ago, but opportunities are limited.”
