The US unemployment rate dropped to 4.2% in June 2026, down from 4.3% in May and below expectations, as many people left the workforce. 

The U.S. Bureau of Labor Statistics (BLS) reports that the number of unemployed fell by 213,000 to 7.09 million, while total employment dropped by 507,000 to 162.26 million. The labour force contracted by 720,000 to 169.36 million, with the participation rate falling to 61.5%, its lowest since March 2021. 

The employment rate also dipped to an over four-year low of 59.0%. The broader U-6 unemployment rate, which includes discouraged and underemployed workers, went down to 7.9% from 8.1%. The economy added 57,000 jobs in June, a worrying sign for labour market stability as wage growth tracked below inflation for a third consecutive month. 

In June, average hourly earnings increased by 3.5%, which remains far below the most recent inflation reading of 4.2%. U.S. job growth slowed more than expected in June ​and payroll gains for the prior two months were revised lower, pointing to a cooling labour market and prompting financial ‌markets to dial back expectations for a near-term interest rate hike from the Federal Reserve.

Lowest labour participation in more than five years

While the Labor Department closely watched the latest employment report showing 720,000 people left the labour force, which pushed down the participation rate to the lowest level in more than five years. Some ​economists said the slowdown in job growth was probably a delayed reaction to the Middle East war.

The average monthly change over the last 12 months is now just 36,000 jobs, the BLS said. Another troubling sign that the BLS flagged was that the health care sector hiring slowed to just 22,000 jobs, which is slower than its 38,000 monthly average over the last year.

In 2025, that sector accounted for almost all of the overall job growth, and it has continued to be the primary driver of labour market growth this year. Leisure and hospitality jobs dropped by 61,000 in June.

Many economists have watched this metric closely, as hotel and restaurant visits can offer an early warning sign of consumer spending pullbacks. The BLS has warned that hiring in oil and gas, construction, manufacturing, retail trade, transportation, financial activities and government all “showed little or no change over the month.”

The US jobs report was issued this morning instead of its traditional Friday release because U.S. bond and stock markets will be closed Friday, July 3 in observance of Independence Day.

The U.S. labour market has spent the past three months trying to get back on a solid footing after several months of net job losses near the end of 2025. The job gains come right before what some economists say will likely be a summer slowdown.