The good news may be bad news for the Federal Reserve as it considers when to begin scaling back its stimulus.
While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation — the share of working-age people either holding a job or looking for one — stands at a 35-year low.
The reduced workforce “poses a problem for the Fed,” said Roberto Perli, a former central bank official who is now a partner at Cornerstone Macro LP in Washington. “The unemployment rate is coming down faster than the Fed thought, but it’s not declining for the right reason.”
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