A Shift In The U.S. Jobs Market

By Blu Putnam

At A Glance

• U.S. employers added 390,000 jobs in May, with the unemployment rate holding at 3.6%.
• A strong labor market is contributing to inflationary pressures.

After a rapid rebound in U.S. jobs, it is only natural that job growth would slow down. However, this time around, a deceleration in jobs growth in the U.S. is not necessarily due to the headline-making news surrounding higher interest rates and elevated inflation. There are some critical long-term factors in play.

After the 2008 Great Recession, it took about six years to recover all the jobs that were lost as a result. Because of the stimulus programs during the pandemic of 2020, it has taken a little less than three years to recover the lost jobs. Such a rapid rebound is typically followed by a return to something close to the long-run trend. The key factors determining the potential for job growth are the expansion in the labor force and labor force participation rates. So, where do we stand now?

Critically, the working-age population is hardly growing at all in the U.S., and the 15-24 age cohort of new individuals entering the job market is slightly shrinking. This suggests the long-term trend for job growth could be quite slow.

The offsetting factor may come from increased labor force participation. Labor force participation has been declining in the U.S. for decades, but the rate dropped markedly after the 2008 Great Recession, and again in the darkest hours of the pandemic. There are signs that we may be seeing a very modest longer-term upward trend develop in participation rates as some people that dropped out of the labor force assess their long-term financial options and decide to go back to work.

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