The Unemployment Rate Unexpectedly Dropped In June. But It Is Not Because There Are More Jobs.

The unemployment rate dropped in June, but it was because fewer people are looking for jobs. The figure fell to 4.2%, the lowest in a year, according to the Bureau of Labor Statistics, but it was explained by the labor force participation rate dropping to the lowest level in 50 years without taking the Covid era into account. Concretely, the figure stood at 61.5%. That compares to more than 67% at its peak in the year 2000.

Mike Reid, head of U.S. economics at RBC, told CNBC that the decline amounts to a “massive exodus” driven by different factors. “This may well be a story of retirements but could also be a story of prior job seekers dropping out of the labor force,” he said.

The labor force, which accounts people working or actively looking for a job, dropped by 720,000 in June. At the same time, those that are unemployed and those not looking for work, increased by more than 830,000. The labor force is down by more than 1 million people compared to the same month of the past year. The biggest drop came from workers between the ages of 25 and 54, believed to be in their prime age.

The report showed that nonfarm payrolls increased by 57,000, less than half the 115,000 expected by the Dow Jones consensus forecast.

Leisure and hospitality reported 61,000 fewer jobs, with the BLS said was a result of of lower seasonal hiring even despite the World Cup taking place in the country.

In contrast, professional and business services gained the most jobs for the month, climbing by 36,000. Social assistance increased by 25,000 and health care by 22,000.

ADP data from Wednesday also showed that private sector employment grew by 98,000 posts after a seasonal adjustment. The Dow Jones consensus stood at 110,000.

Almost half of the growth was in the education and health services sector, data showed. Only 2,000 jobs were not in the services industry.

Nela Richardson, ADP’s chief economist, said “the pace of hiring is telling a story of both supply and demand. We know it’s taking people longer to find work, but there also are signs of labor supply constraints in certain industries.” “For now, the overall effect is a slowdown in job creation.”

Most of the hiring was done by small businesses, as those with fewer than 50 employees added 53,000 roles. Companies employing 500 people or more added 25,000 jobs and those in between hired 29,000.

At the same time, recent data released by Challenger, Gray & Christmas showed that US layoffs surged to their highest May level since the pandemic in 2020, with employers announcing more than 97,000 job cuts across the country last month and citing artificial intelligence as a key factor in roughly 40% of those decisions.