The February U.S. jobs report beat expectations. Payrolls grew by 235,000, which was much more than the 200,000 expected. The unemployment rate dropped to 4.7% and wages rose 2.8% over last year.
But the big story in Friday’s report isn’t that wage growth bounced back or that the Federal Reserve now seems all but certain to raise rates next week. Rather, the big story is that people are coming back to the work force. This report, in other words, is all about participation.
More Americans are participating in the labor force
In February, the employment-to-population ratio rose to 60%, the highest since February 2009 and an indication that one of the most discouraging labor market trends of the last decade is starting to turn.
Among prime-age workers — those between 25 and 54 — participation rose to 81.7% in February, the highest since 2011. At the height of the last cycle, prime age participation topped out at 83.4%.
And looking at this prime-age cohort more closely, the biggest gains have been been among millennials — ages 25 to 34 — with nonemployment falling below 22% for this age group after having been at 24% just a couple years ago.
“Digging into the labor force participation rate, the jump in the prime-age (25 to 54 years) labor force participation rate is especially heartening, rising to 81.7%, the highest since 2011,” write Neil Dutta, an economist with Renaissance Macro.
“All of the increase in the last month came from a surge in participation rates for prime-age women,” Dutta added. “Younger workers boosted their rates of labor force participation too; those aged 20 to 24 years saw their labor force participation rate climb to 71.7%, the highest since March 2014. The hotter the labor market runs, the more attractive it becomes to join the labor market at the margin.”
The labor force participation rate also rose in February to 63%, the highest since March 2014 and the continuation of a stabilization in this measure that began back in 2015.
Since December, the number of people in the workforce has grown by 416,000 while those not in the labor has dropped by 912,000. So not only are people getting jobs, but those who hadn’t even been looking are now trying to find work.
Back in November, Minneapolis Fed president Neel Kashkari told Yahoo Finance that the labor market story in 2016 had been one of participation. And while a long-term chart of labor participation still looks disappointing, seeing workers brought from the margins back into the labor force is a positive turn against a long-term demographic trend.
Wage growth, which in February rose 2.8% over the prior year, is certainly a tailwind for labor force participation. But if there’s one thing that the post-election economy has been about it is a confidence boost among consumers and businesses now that Donald Trump is president, and joining or re-joining the labor force is certainly a decision that requires one to have confidence in their prospects.
And while overall participation still faces demographic headwinds — Boomers retiring en masse will keep a lid on this figure to some extent — a strong labor market can still clearly draw in workers of prime working age who had been pushed to the economic margins.
“Labor force participation rates face long-run, secular headwinds that go beyond a short-run cyclical improvement drawing workers back into the labor market,” write economists at Wells Fargo.
“There is no quick fix, but focusing on improving both the quality and quantity of the labor force will be key to driving faster, sustainable economic growth.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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