Roth Capital Partners’ Darda sees no signs of labor market overheating

Michael Darda, chief economist and macro strategist at Roth Capital Partners, has weighed in on one of the most contested questions in macro right now: whether the US labor market is running too hot. His answer is a clear no.

The numbers tell a cooling story

US labor force participation fell to 61.5% in June 2026, marking its lowest reading since March 2021. July brought another notch lower, to 61.4%.

That’s a sharp departure from the 62.4% to 62.7% range where participation had been holding steady from early 2023 through late 2025.

Nonfarm payrolls reinforced the picture. The economy added just 57,000 jobs in June 2026, undershooting market expectations. The unemployment rate did tick down to 4.2%, but that dip came alongside a shrinking labor force, not a surge in hiring.

A significant chunk of the participation decline traces to a Bureau of Labor Statistics population-control revision in January 2026. Roughly 43% of the drop is linked to those statistical adjustments. Another 41% reflects compositional shifts among different age groups, including changes in participation among prime-age and older workers.

Decreased immigration inflows have also contributed to the softer numbers, adding a policy dimension to what might otherwise look like a purely statistical story.

What this means for markets and the Fed

Darda’s assessment aligns with a patient stance for the Federal Reserve. The central bank has been navigating a tricky corridor: inflation remains above its 2% target, but the employment side of its dual mandate is showing enough softness to counsel restraint.

Reduced inflows of working-age immigrants directly shrink the available labor pool, which can create localized wage pressures even in an otherwise soft market. Sectors that rely heavily on immigrant labor, from agriculture to tech, could face tighter conditions than the headline numbers indicate.

Upcoming employment reports are expected to clarify whether the participation decline is structural or temporary. If participation stabilizes or rebounds, it would validate Darda’s no-overheating thesis. If the decline deepens, the conversation shifts toward structural concerns and the possibility that the economy’s speed limit is lower than previously estimated.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.