The size of the American workforce has fallen by over 1 million people in the past year. Here's what's going on.

By Andrew Keshner

The labor-force participation rate has been skidding for months

What's going on with the job hunt these days?

The share of Americans who are working or looking for a job hasn't been this low since the pandemic, according to a July jobs report full of gut punches.

It's a signal of shifting demographics and a sign of the current mood, economists said - and it's causing some worry.

The labor-force participation rate measures the share of people who are potentially available for work and either pulling in paychecks or out there looking for a job.

That rate fell to 61.4%, the Bureau of Labor Statistics said Friday. February 2021 was the last time the rate was so low.

"Declines in the participation rate are becoming more concerning, as it's currently near historic lows," Dominic Pappalardo, Morningstar Wealth's chief multi-asset strategist, said in a note.

Setting aside the pandemic, the participation rate hasn't been this low in decades, Pappalardo said.

A declining share of people who are ready to work presents a challenge for long-term economic growth, said Cory Stahle, senior economist at the Indeed Hiring Lab.

The size of the workforce has fallen by over 1 million people in the past year, according to the Bureau of Labor Statistics. It's now 169.1 million, compared with 170.4 million last July, according to agency data. The biggest decline occurred in the last couple of months.

It's just one report, and hiring in the summer can be tricky. But experts say there are several forces pushing the rate lower.

First is the ongoing retirement of baby boomers. The youngest boomers are now in their early 60s, and their continuing departure from the workforce is "the most steady thing pushing [the rate] lower. That's the clear, sustained decline," said Stahle.

There's also the birth rate, which has been declining for years, as well as tighter immigration rules and increased enforcement during President Donald Trump's second term, said Matthew Martin, senior U.S. economist at Oxford Economics. As older workers continue their large-scale exit from the workforce, "we don't necessarily have other additional young workers to fill their spot," he said.

The waning labor-force participation rate is also likely a reflection of job hunters' rising frustrations as they try to find work.

The BLS counts someone as actively looking for work if they've applied for jobs in the past four weeks.

In today's sluggish hiring environment, that four-week period could amount to a heartbeat. The July jobs report showed it took unemployed Americans almost 25 weeks on average to find their next job. Around one-quarter of unemployed job seekers have been on the hunt for at least half a year.

So it's possible that after a person sent out scores of applications with no reply, they took a break from looking - and that would technically push them out of the labor pool, said Stahle.

There were 503,000 "discouraged workers" in July, up from nearly 460,000 a year ago, according to the BLS. This category of people did not look for work in the past four weeks, and their reasons could include thinking that no work was available.

It's possible those demoralized job seekers are pushing the participation rate lower, said Martin of Oxford Economics. "I don't know if that's noise in the data, or the start of a trend," he said. "That definitely could be a piece of it."

As Stahle sees it, stymied job seekers are showing in the numbers. "The fear here is we move to a state where people say 'I'm no longer looking,'" Stahle told MarketWatch. "I'm just kind of giving up on my job search right now."

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-Andrew Keshner

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08-10-26 1100ET