By traditional standards, May was a pretty good month for the U.S. economy. It added nearly 400,000 jobs and unemployment was locked in at under 4 percent.
But 2022 is not a time for traditional standards. And as voters continue to complain about high levels of inflation driving up the costs of everything from gas to groceries, the number you might really want to pay attention to is the less-heralded Labor Force Participation Rate. That number measures the percentage of Americans 16-and-over who are employed or actively looking for a job.
It climbed very slightly last month to 62.3 percent, up from 62.2 percent in April, but it still has a way to go to get back to “normal” pre-pandemic numbers. In February of 2020, the last month before the pandemic, the Labor Force Participation Rate was 63.4 percent.
That means the May participation rate is still a little more than a percentage point below what it was in February of 2020. That might not sound like a lot, but if you account for population growth, it means the number of people looking for a job is about 2.6 million less than it “should” be using the February 2020 number.
It turns out that the Covid-19 pandemic gave a lot of people the opportunity to re-examine their lives and hit reset. Some don’t want to go back to their old jobs. Some maybe want to stay home with their children. Some may have decided they wanted to retire or retire early.
All of this has a real impact on inflation because it means there are too many jobs available for too few workers. In that situation, employers tend to raise wages to get the workers they need. And, voila, inflation rises.
Or course, there’s a solution to this challenge for employers; get more people back into the labor market looking for jobs. But, if and when that happens, unemployment will likely rise and/or wages will likely freeze.
Add it all up and you see the challenge the Biden Administration and, frankly, policy-makers in general face. Voters hate inflation, but they also hate rising unemployment and as the economy finds its post-Covid equilibrium, at least one of those things seems unavoidable. For politicians, the options are not palatable.
