The share of Americans working or actively seeking employment has dropped to its lowest level since the pandemic, raising alarms among economists and market watchers alike.
The labor-force participation rate fell to 61.4% in July, according to the Bureau of Labor Statistics, matching levels last seen in February 2021.
The total size of the American workforce now stands at 169.1 million, down from 170.4 million in July of last year, a decline of more than 1 million people over twelve months.
The steepest portion of that drop occurred in just the last couple of months, with 264,000 people exiting the labor force in July alone.
“Declines in the participation rate are becoming more concerning, as it’s currently near historic lows,” said Dominic Pappalardo, Morningstar Wealth’s chief multi-asset strategist, in a note to clients.
Pappalardo added that setting aside the pandemic, the participation rate has not been this low in decades, underscoring the structural nature of the problem facing the U.S. economy.
Economists point to several converging forces driving the decline, beginning with the continued retirement of baby boomers, whose youngest members are now in their early 60s.
Cory Stahle, senior economist at the Indeed Hiring Lab, described the boomer exodus as “the most steady thing pushing [the rate] lower,” calling it “the clear, sustained decline” weighing on participation figures.
A falling birth rate, combined with tighter immigration enforcement under President Donald Trump’s second term, is also reducing the pipeline of available workers, according to Matthew Martin, senior U.S. economist at Oxford Economics.
The number of discouraged workers is also climbing, with 503,000 people classified as such in July, up from nearly 460,000 a year earlier, per Bureau of Labor Statistics data.
These are individuals who did not look for work in the past four weeks, often because they believe no jobs are available to them in the current market.
Martin acknowledged uncertainty about whether the discouraged-worker trend is a statistical blip or something more serious, saying, “I don’t know if that’s noise in the data, or the start of a trend,” adding, “That definitely could be a piece of it.”
Stahle expressed concern that demoralized job seekers are already showing up in the broader participation numbers, warning of a deeper psychological shift taking hold.
“The fear here is we move to a state where people say ‘I’m no longer looking,'” Stahle told MarketWatch, adding, “I’m just kind of giving up on my job search right now.”
A declining share of people ready and willing to work presents a direct challenge to long-term economic growth, Stahle noted, particularly as structural demographic pressures show no sign of reversing.
