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The latest unemployment drop was for the wrong reason

MarketWatch logo MarketWatch 5/3/2019 Jeffry Bartash
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Video by Reuters

The nation’s unemployment rate sank in April to the lowest rate since December 1969, but the milestone comes with a big caveat: The decline stemmed from more people quitting their search for work.

The jobless rate slipped to 3.6% last month from 3.8% in March, continuing a long downward arc from a 27-year high of 10% in 2009. Yet that doesn’t mean there aren’t some potential trouble spots.

a close up of a map: The unemployment rate was the lowest since Dec. 1969. The unemployment rate was the lowest since Dec. 1969.

Take the size of the labor force. It contracted in April by nearly half a million people and fell for the fourth straight month.

The last time the labor force fell four months in a row was during the waning stages of the 2007-2009 Great Recession. And before that one has to go back to 1950.

As a result, the so-called labor-force participation rate slipped to 62.8% from a six-year high of 63.2% in January. That is, every 63 of 100 able-bodied Americans 16 or older either have a job or are seeking one.

The shrinking labor force “is the primary factor behind the unexpected decline in the unemployment rate,” noted chief economist Richard Moody of Regions Financial.

Or as economists like to say, the unemployment rate fell for the wrong reason.

What explains the decline? 

The most likely cause is rapid retirements of baby boomers, whose ranks are dwindling faster than the number of younger people entering the labor force. Slower economic growth earlier in the year may have also discouraged some people from looking for jobs.

Not to worry, most economists say. The size of the labor force can jump up and down, they point out, and it rarely should be taken at face value in any one month. What matters is the long-term trend.

“The labor force numbers bounce around like crazy, so don’t make too much of that drop or the decline in the labor force participation rate,” said economist Joel Naroff of Naroff Economic Advisors.

By virtually every measure, in fact, the labor market is still the strongest in decades. Unemployment and layoffs are at a 50-year low, wages are rising and open jobs easily tops the number of unemployed workers.

“The U.S. economy is in good shape in the spring of 2019,” summed up chief economist Gus Faucher of PNC Financial Services.

Related: Americans say it’s easier to find a job now than at any time in the past 18 years


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