Prime-Age Employment: Flashing Yellow – or a Sign of a Soft Landing?

As improvement in the employment rate for prime-age workers has slowed markedly in recent months – it’s time to start asking – is this a sign of post-pandemic normalization, an economy heading towards full employment, and a soft landing . . . or of something more worrisome?

The growth in employment amongst prime-age (25 to 54) workers in this recovery has been nothing short of astonishing. The percent of people in this group who are employed is currently 80.8 percent – near the highest rate achieved since the end of the expansion in the 1990s/early 2000s. There are more prime-aged workers employed now than there were heading into the pandemic: the prime-age employment rate topped out at 80.6 percent in January 2020. 

However, it is important to note that the post-pandemic improvement in the prime-age employment rate has now functionally stalled out. It is up only 0.1 percentage point over the last year, and its rate of improvement has been slowing dramatically. This slowdown is not necessarily surprising: the employment rate cannot continue growing forever (if nothing else, it will have to stop once it gets to 100 percent). The slowdown is certainly consistent with a labor market that is nearing equilibrium after an astonishing recovery.

But it deserves watching because historically, it is relatively rare for a stall in year-over-year improvement in this measure not to be followed by a recession. For recent recessions, a stall (change of zero) or fall (negative change) in this measure actually preceded the NBER’s declaration of a recession. In fact, the one time in recent history that a consistent stall or slowdown has not been followed by a recession was the holy grail of soft landings in the 1990s.

In other words, the year-over-year change the in prime-age employment rate suggests the economy is slowing down markedly. But that could simply mean that we’re finally nearing full employment. Over the next few months, it will be important to track if year-over-year prime-age employment holds steady or starts to fall. It still remains to be seen whether it will be followed by a recession or the achievement of the ultimate brass ring in macroeconomic policy: a soft landing.