The size of the U.S. work force shrank in April for the first time in seven months. A sign the tightest labor market in decades is getting worse? A bad omen for the economy?
Don’t bet on it, at least not yet, economists say.
They point out the labor force has expanded sharply in the past year, and with job openings at a record high, wages soaring and the pandemic fading, more people are expected to look for and find work.
The unemployment rate, now at 3.6%, is expected to fall even further and touch levels not seen since Dwight D. Eisenhower was president in the early 1950s.
“Extraordinarily high levels of demand for workers is leading to fast job gains despite the low levels of joblessness,” said Indeed Hiring Labs director Nick Bunker. “The outlook for the U.S. economy is highly uncertain, but the labor market continues to be a source of strength.”
The government on Friday reported that the U.S. added 428,000 new jobs in April, the 12th straight month in which employment growth topped 400,000.
Even with businesses complaining mightily about a scarcity of labor, companies are findings ways to lure workers. Higher pay and benefits is one of them.
The one potential negative in another wise strong jobs report was the first decline in the size of the labor force since last September. An estimated 363,000 people dropped out.
The so-called labor-force participation rate also fell to 62.2% from 62.4%, leaving it more than a full percentage point below pre-pandemic levels. It was the first drop in almost a year.
What the statistic shows is the percentage of able-bodied people 16 or older who have a job or are actively looking for one.
For now economists are inclined to dismiss the drop in the labor force given the volatile nature of the household survey from which it is drawn. The figures are often revised, sometimes heavily so.
Before the April report, the size of the labor force had grown by an average of 315,000 a month over the past year.
What’s more, the decline in the labor force last month was mostly concentrated among young workers under the age of 25.
They didn’t go back to school given the nature of the academic calendar year, so it was a viewed as a head scratcher. Why would they suddenly drop out of the hottest labor market in modern times?
“This move does not make much sense,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “Chalk it up to the randomness of these data and let’s see what happens next month.”
That’s not to say the labor-market shortage isn’t real.
The U.S. economy, for example, is still 1.2 million jobs below its pre-pandemic high, based on a survey of business establishments.
Looking at another way, the economy would have about 2 million more workers if the participation rate in the labor market was the same now as it was before the pandemic.
Some economist research suggests it might be hard to get back to that level quickly, even with a record 11.5 million job openings.
The number of people who retired after the viral outbreak, for one thing, was unusually high and most typically do not reenter the labor market. Large numbers of baby boomers are also on the cusp of retirement while immigration levels have fallen off.
“There is a labor shortage,” Federal Reserve Chairman Jerome Powell said on Wednesday after the central bank lifted U.S. interest rates. “There are not enough people to fill these job openings.”