A highly unusual labor market for the US, marked by a shrinking supply of labor.

By Wolf Richter for WOLF STREET.

Total payrolls at nonfarm employers rose by 57,000 jobs in June from May, while May and April job gains were revised lower by a combined 74,000 jobs, undoing part of the upward revisions of 93,000 jobs reported a month ago for April and March, according to the data yoyo by the Bureau of Labor Statistics today (blue columns in the chart).

The six-month average job gain, which irons out the revisions and month-to-month squiggles, ticked up to 88,000 in June, the highest in two years (red line).

This trend line pins the low point of job growth – lob losses – in the second half of 2025 and early 2026, amid extremely volatile data. Job growth has since then turned positive again.

The level of nonfarm employment in June reached a record 158.98 million. The chart of the level of nonfarm employment shows the dynamics: very little or no growth in the second half of 2025 and early in 2026, and then the acceleration of growth over the past four months:

Labor force declines amid crackdown on illegal immigration.

The crackdown on illegal immigration has changed the labor market by curtailing the supply of labor, especially of cheap labor. And the tightening up of legal immigration, such as the H-1B visa program, may have further curtailed the supply of labor.

The labor force is composed of people who are working and of people who are not working but are actively looking for work. It represents the supply of labor.

The labor force data from the BLS’s survey of households is frustratingly messy and subject to huge annual revisions when it is adjusted to the latest population data from the Census Bureau. These revisions are not carried back, but show up in one month every year, causing the labor force data to spike (Jan 2025, blue in the chart below) or to plunge (Jan 2026 green in the chart below) by millions of people in just one month.

But over the longer term, and beyond the squiggles and revisions, we can see the trend: the labor force, after surging in the years through 2024, has been declining since then.

This declining supply of labor is highly unusual for the US and has changed the labor market.

Even as demand for labor has shown only weak growth, or no growth at all for a period through early this year, the supply of labor has declined. So with demand for labor fairly weak, and supply of labor even weaker, the number of unemployed people declined, and the unemployment rate declined and is historically very low.

The labor force in June dropped to 169.36 million, the lowest since the massive up-revision in January 2025 (blue). The labor force in June was still higher than at the end of 2024, but not by much.

The number of unemployed people dropped to 7.09 million in June, the lowest since January 2025.

The unemployment rate inched down to 4.19%, the lowest since June 2025 (4.14%). The unemployment rate reflects the number of unemployed people who are actively looking for a job (7.09 million) divided by the labor force (169.36 million) – and both, the number of unemployed and the labor force declined.

Within a 50-year timeframe, the current unemployment rate is low, largely because of the tight supply of labor (declining labor force).

The prime-age labor force participation rate dropped to 83.3% in June from 83.9% in May. This is very messy data as well with big month-to-month squiggles, up and down (blue in the chart below).

The three-month average, which irons some of this stuff out, declined to 83.7%. This range has been the highest since the Dotcom Bubble in the 1990s.

The prime-age labor force consists of people between 25 and 54 years old. It eliminates the issue of the retiring boomers. When people retire and stop looking for a job, they’re no longer “participating” in the labor force but remain in the population until they die. It’s the surge of boomer retirements over the past 15 years that has pushed down the overall labor force participation rate (not show here).

Average hourly earnings rose by 0.35% in June from May (+4.2% annualized), and by 3.52% year-over-year.

Inflation has been accelerating for months and in May reached 4.2%, exceeding wage growth.

Employment by major industry.

The charts below of employment by industry take the decade-long view beyond the month-to-month squiggles.

The jobs in each industry are defined by work location. The surveys are sent to employer facilities. The primary activity at that facility determines the industry category (by NAICS code). For example, a worker at an Amazon fulfillment center would be under “transportation and warehousing,” not “retail.”

Some industry categories are very broad, and therefore have a very large number of employees, such as “Professional and business services,” which is where many tech and AI offices are categorized, but also includes architects, lawyers, accountants, etc. Others are narrower and therefore have far fewer employees, such as “Manufacturing,” which includes only employees at manufacturing plants, but not employees at other offices, design centers, or service centers of manufacturing companies.

Jobs in Professional and business services plus Information: Workers with tech skills can easily shift from locations with NAICS codes for the small “Information” category to locations with NAICS codes for the vast Professional and business services category. So I combined those two categories into one.

• Total employment: 25.28 million
• 3-month average growth: +16,000

Jobs in Healthcare and social assistance:

• Total employment: 23.91 million
• 3-month average growth: +50,000

Jobs in Leisure and hospitality – restaurants, hotels, resorts, casinos, arts, entertainment, etc.:

• Total employment: 16.95 million.
• 3-month average growth: -9,000

Jobs in Construction (all types, from single-family housing to highways):

• Total employment: 8.33 million
• 3-month average growth: +7,000

Jobs in Manufacturing: Automation powers manufacturing in the US. All new plants in the US are heavily automated, and automation at old plants is constantly improved, to reduce to costs of manual labor. Jobs at manufacturing plants today require a high skill level and include tech jobs.

• Total employment: 12.60 million
• 3-month average growth: 0

Jobs in Retail trade are at brick-and-mortar retail stores, such as malls, auto dealers, grocery stores, gas stations, etc., and other retail locations such as markets.

It does not include the tech-related jobs of ecommerce operations, drivers, and warehouse employees.

A big portion of this sector has been under pressure from ecommerce, and dozens of major retailers have been liquidated in bankruptcy court, some of which we have documented since 2016 in our Brick-and-Mortar Meltdown series.

The brick-and-mortar retailers that are doing well are those that are selling groceries, motor vehicles, gasoline, and others that are not under pressure from ecommerce.

• Total employment: 15.46 million
• 3-month average growth: +8,000.

Jobs in Financial activities (finance and insurance plus real estate renting, leasing, buying, selling, and management). The decline is driven by the real estate turn-down, which has led to massive job destruction among mortgage lenders and mortgage brokers.

• Total employment: 9.10 million
• 3-month average growth: -9,000

Jobs in Transportation and Warehousing:

• Total employment: 6.05 million
• 3-month average growth: +22,000

Jobs in Wholesale Trade:

• Total employment: 6.58 million.
• 3-month average growth: +2,000

Jobs in “Other services”: includes repairing equipment and machinery; promoting or administering religious activities; grantmaking; advocacy; dry-cleaning & laundry services; personal care services; death care services; pet care services; photofinishing services; parking services; and dating services.

• Total employment: 6.04 million
• 3-month average growth: +7,000

Federal government: Since January 2025, civilian employment shrank by 324,000 workers.

• Total employment: 2.69 million
• 3-month average growth: +1,000

Government payrolls don’t include workers on the payroll of government contractors; they’re in private-sector categories, such as in “Professional and business services,” and government cutbacks on contractors triggered some layoffs on those non-government categories also.

Jobs at State governments, a large portion of which are jobs a state universities and colleges, which are huge employers, but enrollment has been declining, especially enrollment of foreign students, where state universities get a big chunk of their tuition and fee income.

Since January 2025, state governments have shed 56,000 jobs.

• Total employment: 5.47 million
• 3-month average growth: 0

Jobs at Local governments, mostly educators, first responders, and healthcare workers.

• Total employment: 15.22 million
• 3-month average growth: +11,000

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