For the Federal Reserve, the most encouraging part of recent non-farm payroll reports hasn't been the hundreds of thousands of Americans getting jobs. It's that more of them are trying to.
After sinking to its lowest level since the 1970s in September, the labor force participation rate—the share of U.S. adults who have or are looking for a job—has since risen by half a percentage point to 62.9 percent.
Monetary policymakers have been hoping a labor market that runs hot will encourage those on the sidelines to jump back in. While this position is at odds with what's happened during previous cycles, the last five readings have partly vindicated the Fed's stance.
But according to Goldman Sachs Group Inc., there aren't too many would-be workers for Yellen & Co. to lure back into the labor force.
"We now view the cyclical participation gap as within 0.1-0.2 percentage points of being closed, mostly reflecting a slightly elevated number of discouraged workers," wrote economist David Mericle.
That means the subdued labor force participation rate is primarily a reflection of structure changes, chiefly the aging population, rather than lingering weakness from the financial crisis.
Mericle undertook a granular analysis of the demographic groups that contributed the most to the recent rebound in the labor force participation rate:
"The 0.5 percentage point increase in the aggregate participation rate was driven by declines in the shares in school (-0.2 percentage points), retired (-0.15 percentage points), disabled (-0.1 percentage points) and not interested in a job (-0.05 percentage points)," wrote Mericle.
According to models used by Goldman, there's no reason to expect continued improvement from these categories.
"Each of these factors is driven in part by hard-to-predict cultural trends, and there is therefore inevitably much uncertainty about the outlook," the economist cautioned. "But overall, we continue to expect the participation rate to decline by roughly 0.25 percentage points per year from its current starting point."
If a lower percentage of Americans have or seek a job, then job growth doesn't have to be nearly as strong as it has been for much of this cycle for the unemployment rate to continue falling. Mericle concludes that the level of monthly net job additions needed to push down the unemployment rate is just above 85,000—less than half of the average monthly growth of non-farm payrolls over the past five years.