Crackdown on illegal immigration and boomer retirements continued to reduce the labor force, causing unemployment to drop further.
By Wolf Richter for WOLF STREET.
Total payrolls at nonfarm employers fell by 23,000 jobs in July from June, as local government jobs plunged by 57,000, the biggest month-to-month drop of local government jobs in years.
But private sector payrolls rose by 30,000 jobs in July from June, same increase as in the prior month, to 135.59 million, according to the Bureau of Labor Statistics today (blue columns).
The six-month average job gain, which irons out the month-to-month squiggles, dipped to 54,000 (red line).
By category of private sector employers.
Three major private-sector categories shed jobs:
- Leisure and hospitality (-40,000);
- Retail trade (-19,000);
- Financial activities (-14,000).
All other major private-sector categories gained jobs, including the two categories where many of the tech companies are (Information and Professional and Business Services):
- Construction (+22,000);
- Manufacturing (+5,000);
- Information (+11,000);
- Professional and business services (+18,000);
- Healthcare (+22,000);
- Wholesale trade (+5.000);
- Transportation & warehousing (+10,000);
- Other services (+9,000).
Total nonfarm payrolls were dragged down by local government jobs (-57,000) and federal government jobs (-3,000). State governments added 7,000 jobs, the first gain in many months.
Since January 2025, all governments combined have shed 166,000 jobs:
- Federal government jobs: -327,000.
- State government jobs (largely higher education such as state universities): -54,000.
- Local government jobs (largely education and first responders): +94,000.
The six-month average gain of total payrolls, which irons out the revisions and month-to-month squiggles, declined to a gain of 44,000 in July (red line).
The level of total nonfarm employment in July, driven by the drop in government jobs, dipped to 158.86 million:
Labor force declined further. The labor force consists of people who are working and people who are not working but are actively looking for work. It represents the supply of labor.
The crackdown on illegal immigration and the continuing boomer retirements have substantially reduced the labor force. And that continued in July.
The labor force in July dropped by another 264,000 people to 169.09 million, the lowest since the massive up-revision in January 2025 that finally accounted for the surge of immigration in the prior three years (blue segment).
Over the past 12 months, the labor force – the supply of labor – has plunged by 1.32 million people! In prepandemic years, the labor force would grow by about 1 million to 2 million per year.
This continued drop in the labor force has dramatically changed the dynamics of the labor market, leading among other things to falling unemployment, a falling and very low unemployment rate, and a very high prime-age labor force participation rate.
The number of unemployed people dropped to 6.92 million in July, the lowest since January 2025.
The unemployment rate declined to 4.09%, the lowest since January 2025. The unemployment rate reflects the number of unemployed people who are actively looking for a job (6.92 million) divided by the labor force (169.09 million) – and both, the number of unemployed and the labor force have been declining.
Within a 50-year timeframe, the current unemployment rate is low, largely because of the shrinking supply of labor.
The prime-age labor force participation rate ticked up to 83.4% in July, after the drop in June (blue in the chart below).
The three-month average, which irons out some of the squiggles, declined to 83.5%. This range has been the highest in over 20 years.
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 shown here).
Average hourly earnings rose by 0.05% in July from June, and by 3.2% year-over-year.
Inflation has been running hot for months, and this wage gain of 3.2% is now below the rate of CPI inflation of 3.5%, after outrunning CPI inflation over the past three years.
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I see construction increased. But no mention in your post of AI. AP headline story was much longer and also did not mention AI once. Might be time to take your chips off the table.
“But no mention in your post of AI.”
You just didn’t read the article, you only and lazily searched for “AI”. But if you read the article, you will find this section:
All other major private-sector categories gained jobs, including the two categories where many of the tech companies are (Information and Professional and Business Services):
There is another factor – forced retirements. Hundreds of thousands of tech workers have been laid off over the past couple of years. It is only increasing because of AI. It is practically impossible for anyone over 50 or 55 to get a job in tech. All interviews are video and as soon as they see your age most companies find a way to ghost you. With 5 or 6 qualified people per job there is no problem doing that. It is the older workers who cannot re-tool at 60 who are forced into early retirement. Younger tech workers can leave tech more easily.
That is plain old agism. Age discrimination is the only form of illegal discrimination that is not only tolerated but also encouraged, and it’s worse in tech than in some other sectors, and it has always been a huge issue. Nothing has changed. Same as before AI. It has always been part of the labor market, unemployment, and retirements. I have several friends with great resumes who fell into this category years before AI became a factor.
Would you add “upward inflation pressure” to this “leading to” list?
“This continued drop in the labor force has dramatically changed the dynamics of the labor market, leading among other things to falling unemployment, a falling and very low unemployment rate, and a very high prime-age labor force participation rate.”
I wonder how AI and robotics will affect employment numbers in the future. Farm worker and manufacturing worker numbers have declined for decades. It seems likely distribution chain, and office workers will be next to see large scale layoffs due to AI. Large categories like call center and distribution center staff come to mind. People who handle, analyze, and check documents of all types better be looking over their shoulders. These global numbers like national and regional unemployment rates need to be broken down into narrow sectors to get a better idea of what is happening to us. If all we have left are baristas, and robotics engineers, society is going to be in for a rough road.
“These global numbers like national and regional unemployment rates need to be broken down into narrow sectors to get …”
I gave you the major categories of industries in the article. All you have to do is read the article. Baristas are in “Leisure and hospitality” – go back upstairs and look for it.