62.1%: Labor Force Participation Falls in July, As 239,000 More Americans Drop Out of Labor Force

(CNSNews.com) – Non-farm payrolls added a whopping 528,000 in July, more than double the estimate of 250,000; and the unemployment rate edged down to 3.5 percent in July from 3.6 percent in June.

The U.S. Bureau of Labor Statistics reports that job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. “Both total nonfarm employment and the unemployment rate have returned to their February 2020 pre-pandemic levels,” BLS noted.

But on the downside, the number of Americans not in the labor force — no job and not looking for one — climbed above the 100,000,000 mark again, settling at 100,051,000 in July. That’s a 239,000 increase from June; and it follows an increase of 510,000 from May to June, when the number rose to 99,812,000.

The “not in the labor force” category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work.

People who don’t have a job and aren’t looking for one put downward pressure on the important labor force participation rate, which dropped a tenth of a point to 62.1 percent in July.

According to the Congressional Budget Office, a lower labor force participation rate is associated with lower gross domestic product (GDP) and lower tax revenues. It is also associated with larger federal outlays, because people who are not in the labor force are more likely to enroll in certain federal benefit programs.

When the pandemic hit in 2020, the number of Americans not in the labor force surged to a record high of 103,538,000 in April of that year. That number drifted down to 100,667,000 when Joe Biden took office, dropping below 100,000,000 in November 2021.

For the next eight months, until today, the number has hovered between 99,035,000 and 99,902,000.

In July, the civilian non-institutional population in the United States was 264,012,000. That included all people 16 and older who did not live in an institution, such as a prison, nursing home or long-term care facility.

Of that civilian non-institutional population, 163,960,000 were participating in the labor force, meaning they were either employed or unemployed — they either had a job or were actively seeking one during the last month. This resulted in a labor force participation rate of 62.1 percent in July, down from 62.2 percent in June.

The participation rate was 61.4 percent when Joe Biden took office as the pandemic raged. Today’s number, 62.1 percent, is still below the Trump-era high of 63.4 percent in February 2020, just before COVID shut things down.

After rising for more than three decades, the overall labor force participation rate peaked in early 2000 at 67.3 percent and subsequently trended down. In recent years, baby-boom retirements have contributed to the decline in the overall participation rate.

In July, the number of employed Americans increased by 179,000 to 158,290,000 from 158,111,000 in June, and the number of unemployed Americans dropped sharply to 5,670,000, a decrease of 242,000 month-to-month. This pushed the unemployment rate down another notch to 3.5 percent.

Among the major worker groups, the unemployment rates for adult women (3.1 percent) and Whites (3.1 percent) declined in July. The jobless rates for adult men (3.2 percent), teenagers (11.5 percent), Blacks (6.0 percent), Asians (2.6 percent), and Hispanics (3.9 percent) showed little change over the month.

In July, average hourly earnings for all employees on private nonfarm payrolls rose by 15 cents, or 0.5 percent, to $32.27. Over the past 12 months, average hourly earnings have increased by 5.2 percent, as employers increase pay amid a shortage of workers. This adds to inflationary pressure.

The change in total nonfarm payroll employment for May was revised up by 2,000, from +384,000 to +386,000, and the change for June was revised up by 26,000, from +372,000 to +398,000. With these revisions, employment in May and June combined is 28,000 higher than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.)

The July report indicates that the COVID pandemic continues to affect workers:

Last month, 7.1 percent of employed persons teleworked because of the coronavirus pandemic, unchanged from the prior month. These data refer to employed persons who teleworked or worked at home for pay at some point in the 4 weeks preceding the survey specifically because of the pandemic.

In July, 2.2 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic. This measure is little changed from the previous month.

Among those not in the labor force in July, 548,000 persons said they were prevented from looking for work due to the pandemic, little changed from the prior month.

Long-term projections

In a report dated July 27, 2022, the Congressional Budget Office offered its long-term (30-year) budget outlook.

CBO notes that since the mid-2000s, the overall rate of labor force participation (for people age 16 or older) in the United States has declined substantially, driven predominantly by the aging of the population.

“Because that aging is likely to continue, CBO expects the decline in participation to persist during the first half of the 30-year projection period before stabilizing in the second half of the period,” the report said. “As a result, the labor force is expected to grow more slowly than the number of people age 16 or older for the first two decades of the period and at roughly the same pace as the number of people age 16 or older in the third decade.”

The agency’s projections of the labor force participation rate and the size of the labor force are important factors for CBO’s projections of other economic outcomes. For example, faster growth of the labor force would directly boost GDP growth. It would also cause private capital to accumulate faster, which would further boost the growth of GDP.

In contrast to the aging of the population, CBO said it expects two long-term trends to boost participation in the labor force:

The population is becoming more educated, and people with more education tend to participate in the labor force at higher rates than do people with less education. And increasing longevity is expected to lead people to continue working until increasingly older ages.

But CBO said it expects those two trends to be mostly offset by other trends that will put downward pressure on the labor force participation rate.

The unemployment rate is projected to gradually rise over the next few years. By 2028, it is projected to reach 4.5 percent, CBO said.

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