In June, the number of people in the workforce dropped by 432,000 to just over 157 million. This translates to 62.6% of the overall population—the lowest the labor force participation rate has been since 1977.
The same report suggests that the unemployment rate dropped to 5.3%—its lowest level since April 2008. June’s reading was healthier than many economists had expected and brings it back to a rate last seen before the financial crisis in 2008.
Although the unemployment rate dropped to a pre-recession level, the labor participation rate suggests mixed signals. Some argue that the drop in the labor force participation rate is largely about demographics and is nothing to worry about. Aging baby boomers are retiring and technology has been diminishing the human force in the labor market. Critics, in contrast, argue that the drop in the workforce suggests the labor market is a lot weaker than many think.
Over the past few years, the labor force participation rate dropped not just in the U.S. but in eight major developed countries; including Sweden, Japan, Canada, Germany, France, Spain, and the United Kingdom. Among those, Japan and the U.S. are dealing with more of an aging population.
All told, after so many years of waiting, the Federal Reserve has reportedly signaled that it plans to raise the interest rate if concerns over the labor market ease. On July 16, Janet Yellen said the U.S. economy is on track to bear a rate hike later this year. A rate hike would be a healthy indication that the economy is fully recovered from the financial crisis of 2008.
Both investors and policymakers will keep an eye on the next upcoming report of the labor market in the next few months. The next report is scheduled to be published on Friday, August 7, 2015.