{"id":8591,"date":"2026-09-06T21:06:46","date_gmt":"2026-09-06T21:06:46","guid":{"rendered":"https:\/\/nextcitydigest.com\/?p=8591"},"modified":"2026-09-06T21:06:46","modified_gmt":"2026-09-06T21:06:46","slug":"fewer-americans-are-working-or-looking-for-a-job-experts-cant-agree-on-why","status":"publish","type":"post","link":"https:\/\/nextcitydigest.com\/?p=8591","title":{"rendered":"Fewer Americans are working or looking for a job. Experts can\u2019t agree on why"},"content":{"rendered":"
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By Julia Fanzeres, Bloomberg News<\/strong><\/p>\n

A recent plunge in U.S. labor force participation has sparked competing theories about whether persistent drivers \u2014 like aging and immigration \u2014 or more temporary seasonal shifts are to blame. Any evidence in upcoming jobs reports could reshape how policymakers view the labor market.<\/p>\n

Read more SF Giants bullpen wastes Perdomo\u2019s scoreless gem in loss to Mets<\/a><\/p>\n

The decline in the share of Americans who are working or looking for work over the last six months has been among the fastest recorded in nearly eight decades of data. That\u2019s helped pull the unemployment rate down as well: At 4.1% in July, it was the lowest in more than a year.<\/p>\n

If the drop in participation is primarily due to persistent factors like aging and shifts in immigration policy, measured unemployment could stay low even without much job growth, according to Michael Gapen, the chief U.S. economist at Morgan Stanley.<\/p>\n

But if shorter-term factors like seasonal swings or a weak spell for hiring are more to blame, the unemployment rate could rise in the months ahead, potentially influencing the Federal Reserve\u2019s coming interest-rate decisions.<\/p>\n

\u201cIf we\u2019re right that the participation rate can move higher off of some of these statistical aberrations, then there\u2019s upside risk to the unemployment rate heading into year-end,\u201d Gapen said. \u201cAnd on the margin, it may make the Fed less willing to tighten.\u201d<\/p>\n

Here are some of the potential factors at play:<\/p>\n

Retirement wave<\/h4>\n

One of the clearest forces pushing participation lower is the aging of the U.S. workforce. The BLS implemented a hefty downward adjustment to January\u2019s participation reading as part of an annual update to underlying population estimates, which incorporated more women ages 65 and over and fewer men between the ages of 25 and 54.<\/p>\n

\n<\/div>\n

But the 0.7 percentage-point decline in the participation rate since then is the part that\u2019s harder to explain. Aging should subtract more like 0.2 percentage point each year as millions of Baby Boomers come of retirement age, according to Morgan Stanley estimates.<\/p>\n

Some economists see signs that retirements may be accelerating in 2026, especially with a booming stock market lifting investment portfolios.<\/p>\n

\u201cWe think this is related to the 35%+ increase in the S&P 500 over the last two years,\u201d economists at Bank of America Corp. said in a recent report. \u201cThe resulting surge in wealth has likely made retirement an easier choice for many.\u201d<\/p>\n

Immigration crackdown<\/h4>\n

Another factor is the Trump administration\u2019s immigration crackdown, which is likely weighing on the participation rate by changing the composition of the workforce.<\/p>\n

\n<\/div>\n

Foreign-born workers have a higher participation rate than native-born workers \u2014 around 66% versus 61% \u2014 so ratcheting up deportations or allowing fewer entries has a small mechanical impact on labor force participation by reducing the average participation rate.<\/p>\n

If immigrants are leaving the labor force but remaining in the country, however, that would create a bigger drag on the participation rate.<\/p>\n

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\u201cIt\u2019s not all the slowing immigration,\u201d Veronica Clark, an economist at Citigroup Inc., said of the recent declines in participation. But \u201cthose are people that are entering the economy who have a higher average participation rate, and so when those people are not entering, that just lowers the average,\u201d she said.<\/p>\n

Seasonal noise<\/h4>\n

The BLS adjusts its data each month to smooth through swings that tend to happen at the same time every year, like the timing of the school year and young adults entering and exiting the workforce for temporary summer jobs. Last summer, though, the participation rate weakened unexpectedly before rebounding in the fall despite seasonal adjustments.<\/p>\n

Some see that as a potential problem this year as well. The participation rate fell by 0.4 percentage point from May to July, accounting for more than half of the entire decline in the last six months of data. If faulty seasonal adjustments were to blame, the unemployment rate could rise over the next few months as the effect unwinds, even without a wave of layoffs.<\/p>\n

\u201cYou can get some of these weird dynamics at the start of the summer,\u201d Clark said. \u201cThe pattern has been that that kind of reverses later in the year.\u201d<\/p>\n

But seasonality probably isn\u2019t the biggest culprit, at least when it comes to younger workers: Economists at Goldman Sachs Group Inc. estimate that distortions in the data for those between the ages of 16 and 24 accounted for only 0.1 or 0.2 percentage point of the 0.7-point slide in overall participation since January.<\/p>\n

Weak demand<\/h4>\n

A final possibility is that weak hiring is sidelining some potential workers who would otherwise be searching for work. A better hiring environment could actually boost the unemployment rate if it brings more people into active job searches, adding them to the official count of the unemployed.<\/p>\n

This is especially relevant for the prime working-age population between the ages of 25 and 54, whose participation rate fell 0.6 percentage point in June \u2014 the most since April 2020 \u2014 and rebounded by only 0.1 percentage point in July.<\/p>\n

On the other hand, only a small fraction of the rise in those not in the labor force since January has been among people who say they want a job.<\/p>\n

\u201cCyclical labor-market weakness in addition to immigration restrictions could be a part of the story,\u201d said Shruti Mishra, an economist at Bank of America. \u201cDo I think it\u2019s the biggest part of the story right now? Probably not.\u201d<\/p>\n

\u00a92026 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.<\/p>\n

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