WASHINGTON — The U.S. labor force participation rate fell to 61.5% in June, its lowest level in more than five years and among the weakest readings outside the COVID-19 pandemic period, as hundreds of thousands of Americans left the workforce even as the unemployment rate edged lower, according to government data released ahead of the Independence Day holiday.
The U.S. Bureau of Labor Statistics said the participation rate, which measures the share of the civilian population either working or actively seeking employment, declined from 61.8% in May to 61.5% in June. The civilian labor force shrank by about 720,000 people during the month, while the number of people classified as not in the labor force increased by more than 800,000.
The decline accompanied a sharp slowdown in hiring. Nonfarm payrolls increased by 57,000 jobs in June, well below economists' expectations, while the Labor Department revised April and May payroll gains down by a combined 74,000 jobs. Despite weaker hiring, the unemployment rate dipped to 4.2% from 4.3%, largely because fewer people were counted as participating in the labor market.
Economists said the drop in participation complicates assessments of labor market conditions because a lower unemployment rate driven by fewer job seekers does not necessarily indicate stronger employment demand. Analysts cited a combination of demographic trends, including retirements among older Americans, as well as broader economic factors that may be discouraging some workers from seeking jobs.
Employment gains remained concentrated in a limited number of industries, including healthcare, professional services and construction, while leisure and hospitality recorded significant job losses. Average hourly earnings continued to rise at a moderate annual pace, but wage growth remained below the inflation rate reported in recent months.
Financial markets interpreted the weaker employment report as reducing the likelihood of an immediate increase in U.S. interest rates, with investors lowering expectations for additional monetary tightening by the Federal Reserve. The softer labor data contributed to declines in the U.S. dollar and Treasury yields following the report's release.
The June employment report will be closely watched by Federal Reserve policymakers as they evaluate whether slowing job creation, falling labor force participation and persistent inflation warrant changes to monetary policy at upcoming meetings.
