There was one red flag in a shockingly strong U.S. jobs report. Or was there?

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The shockingly large 528,000 gain in new jobs in July contradicts a mountain of evidence that suggests the US economy is slowing. The news can’t be all good, can it? Well, no. There was one potential red flag in the report.

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In an odd twist, the share of working-age Americans who either have a job or are looking for one fell again in July to a seven-month low.

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“That one is a headscratcher,” said chief economist Richard Moody of Regions Financial. “I don’t know what to make of that.”

With so much work available and jobs easy to get, the rate of participation in the labor market normally would be expected to rise. A strong jobs market typically draws a greater percentage of the population into the workforce.

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The opposite is happening.

The labor-force participation rate fell a tick to 62.1% in July, down from a pandemic high of 62.4% in March. It had grown steadily from 2021 through the spring of 2022 before hitting a wall.

Put another way, 62.1 of every 100 able-bodied people 16 or older are working or looking for work.

Before the pandemic, the rate stood at 63.4%.

What does it mean? Several million people who normally would be working are missing from the labor force. That helps explain the most acute labor shortage in decades.

What’s worse, the participation rate has leveled off even though the size of the working-age population has grown by almost 4.5 million since the last month before the pandemic.

Turns out the problem might not be so bad after all, though.

For one thing, almost all the decline in labor-force participation is concentrated in people ages 16 to 24 and above 65 — the young and old.

By contrast, the share of the working-age population in the prime of their life (ages 25 to 54) is quite stable at 82.4% and not far from the pre-pandemic peak.

It’s worth keeping in mind that the ongoing retirement of the baby-boom generation was depressing labor-force participation before the pandemic. What’s been happening lately is just continuing that trend.

What would be more worrisome is a steady decline in participation among workers in the prime of their life. So far that is not happening.

“In normal times, a slide in labor force participation could be interpreted as a signal that the labor market is softening and potential workers are growing discouraged at a lack of job opportunities,” chief economist Stephen Stanley of Amherst Pierpont Securities said.

“In the current environment, that is clearly not the case.”

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Credit: www.marketwatch.com /

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