Some are skeptical, though, because the decline in the unemployment rate reflects not only increases in employment but declines in labor force participation. Many interpret such declines in the participation rate as representing discouraged workers who have stopped looking for work. Yet, labor force participation rates can also decline for demographic reasons.
Rising employment and growth in real disposable income are translating into increased spending rather than increased saving, reflecting households’ confidence in future economic prospects. This contributes to a positive feedback loop between consumption, employment and income, further bolstering the recovery. But wage dynamics still lag behind due to the remaining slack.