The last drop in the unemployment rate was for the wrong reason

Bloomberg News / Landov

The country's unemployment rate in April was the lowest since December 1969, but the warning must be taken into account: the decline is due to the fact that more and more people have stopped looking for work.

The unemployment rate fell to 3.6% last month, from 3.8% in March, falling into a long bearish lineage compared to the 27% peak reached in 27 years in 2009. That does not mean however not that there are no potential problems.

Take the size of the workforce. It contracted in April from nearly half a million people and fell for the fourth month in a row.

The last downturn in the labor force occurred four consecutive months during the slowdowns of the Great Recession of 2007-2009. And before that, we have to go back to 1950.

As a result, the participation rate for the labor force fell from 63.2% to its highest level in six years, from 63.2% in January to 62.8%. That is, all 63 out of 100 valid Americans aged 16 or over have a job or are seeking one.

The contraction in the workforce "is the main factor behind the unexpected drop in the unemployment rate," said Regional Financial Chief Richard Moody.

Or, as economists like to say, the unemployment rate has fallen for the wrong reason.

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What explains the decrease in the size of the labor force?

The most likely cause is the rapid retirement of baby boomers, whose ranks are declining faster than the number of young people entering the labor market. The slowdown in economic growth earlier this year may also have discouraged some people from looking for a job.

Do not worry, say most economists. The size of the workforce can go up and down, they point out, and it should rarely be taken at face value every month. What matters is the long-term trend.

"The active population fluctuates like crazy, so do not rely too much on this drop or on the rate of activity," said economist Joel Naroff of Naroff Economic Advisors.

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In fact, the labor market is still the most powerful in decades. Unemployment and layoffs are at their lowest in 50 years, wages are rising and open jobs are easily outnumbering the number of unemployed workers.

Lily: Americans say it's easier to find a job now than at any time in the last 18 years

"The US economy is doing well in the spring of 2019," said PNC Financial Services Chief Economist Gus Faucher.

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