Labor participation falls to 61.4%, lowest since early 2021, as US economy sheds jobs

The US labor force participation rate dropped to 61.4% in July, down from 61.5% in June, hitting a level not seen since early 2021. That might sound like a rounding error, but the number underneath it tells a grimmer story: roughly 264,000 people walked away from the labor force entirely.

Pair that with nonfarm payrolls that actually contracted by 23,000 jobs, against expectations of an 80,000 gain, and you get a jobs report that managed to disappoint on almost every line item.

The numbers behind the headline

The Bureau of Labor Statistics didn’t just deliver bad news for July. It retroactively made May and June worse, too. Revisions to prior months shaved off a combined 103,000 jobs from previously reported figures.

The unemployment rate technically improved, ticking down to 4.1% from 4.2% in June. About 6.9 million Americans remained unemployed. But economists have been quick to point out that the rate fell for the wrong reasons. When people stop searching for work, they’re no longer counted as unemployed.

The employment-population ratio held steady at 58.9%. Retail trade and local government education were among the sectors dragging hardest on the payroll count.

Why workers are disappearing

A participation rate of 61.4% means nearly four in ten working-age Americans are not in the labor force. Demographic shifts are doing a lot of the heavy lifting. The Baby Boomer generation continues to age out of the workforce, and lower immigration rates have reduced the pipeline of new entrants.

What this means for markets and the Fed

Consumer spending drives roughly two-thirds of US economic output. When fewer people are working, and the sectors shedding jobs are consumer-facing ones like retail, the spending engine loses fuel.

One report doesn’t make a recession. But a report that misses expectations by more than 100,000 jobs, revises the recent past downward by another 103,000, and shows a quarter-million people exiting the workforce entirely is not a report you can wave away with seasonal adjustment caveats.

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