Yahoo Finance 
The job market isn't as strong as you think
(A fake Hulk Hogan and a fake Macho Man Randy Savage.Flickr/David Goehring)
The labor market is doing great, Federal Reserve Chair Janet Yellen says.
"The strong labor market is attracting people from outside the labor force back into employment," she said in her press conference after Wednesday's Federal Open Market Committee meeting.
While the FOMC declined to raise interest rates at the meeting, Yellen pointed to the strong labor market in particular as evidence that a Fed rate hike was more likely to happen by the end of the year.
It's great news, right?
Actually, not so much, Omair Sharif argues in a Societe Generale research note on sent out to clients on Thursday.
The labor-force participation rate isn't increasing because of new entrants into the workforce, he said. Instead, the labor force is rising because fewer people are exiting the workforce.
Since March, entries into the workforce have been declining, and the most recent six-month average of 6.22 million entries was the lowest since December 2009 and substantially lower than the average since then of 6.5 million.
(SG Cross Asset Research/Economics)
At the same time, exits from the labor force have dropped sharply, from 6.57 million in September 2015 to 6.22 million in March of this year.
While there are different flows in the labor market, the overall change in the labor force each month is whittled down to entries minus exits. From October to March, that total has jumped by 1.86 million, while the total labor force increased by 2.42 million.
Since entries into the labor force didn't really change over this time period, it was the decline in the number of people leaving that propelled the size of the labor force higher.
(SG Cross Asset Research/Economics)
This is a little-discussed dynamic that changes the meaning behind the labor-force market numbers.
More recently, Sharif argues, both entries and exits have been plunging. The slowdown may "reflect caution on the part of both employers and employees about the health of the labor market and prospects for the economy in the future," Sharif said.
For now, it looks as if the "strong" labor market may be a short-term positive lacking the fundamental expansion to back it up.
NOW WATCH: KRUGMAN: The richest Americans should have a tax rate over 70%
More From Business Insider
