(NewsNation) — The U.S. economy added a staggering 528,000 jobs in July — more than twice the number economists expected — as America’s hiring boom continues despite widespread concerns that a recession could be right around the corner. But another economic indicator has yet to bounce back.

The labor force participation rate remains below pre-pandemic levels and has even dropped in recent months.

“I am baffled by the decline in labor force participation,” Harvard economist Jason Furman tweeted Friday, pointing out that the July decrease occurred despite tons of job openings and jobs added.

Last month, the share of the population working or looking for work fell to 62.1%, down from 63.4% in February 2020.

The U.S. Chamber of Commerce put the decline in perspective on Friday: “There would be 3.4 million more workers today if labor force participation was the same as in February 2020.”

In other words, many people who left the workforce at the start of the pandemic still haven’t returned.

That rate matters because it can signal broader trends in the overall labor supply. When businesses can’t find workers, it’s harder to keep up with consumer demand and that creates supply shortages, which means prices go up for existing goods and services, explained Chris Decker, an economist at the University of Nebraska Omaha.

It’s a push and pull Americans have become all too familiar with as inflation soars to 9.1%.

So why are more working-age Americans staying on the sideline?

“The leading contender for why that’s the case is early retirement,” said Decker who pointed out that the pandemic pushed many working-age Americans out of the labor force earlier than they had planned.

An analysis by economists at the Federal Reserve Bank of St. Louis supports that hypothesis. A 2021 report found that an estimated 2.4 million people retired early due to the COVID-19 pandemic.

The additional retirements could be just the start of a broader demographic change that Decker says will impact the labor market for years to come as baby boomers leave the workforce.

Last month’s gains are still good news overall and indicate the economy has now recovered all 22 million jobs lost during the pandemic.

The unemployment rate also fell, dropping to 3.5%, the lowest it has been since February 2020, according to data released Friday by the Bureau of Labor Statistics.

For that reason, Decker doesn’t think the United States has entered a recession yet, despite recent data showing real GDP declined in the first two quarters of the year — an informal definition of a recession.

“It does suggest that the labor market is still pretty robust and I think there’s still some room for job growth over the next few months,” Decker said.

July’s job growth was especially strong in the service sector — leisure and hospitality added 96,000 jobs (still 7.1% below pre-pandemic levels), professional and business service jobs increased by 89,000 and employment in health care rose by 70,000.

The number of open jobs fell to 10.7 million in June but that’s still almost twice the number of people unemployed.

For now, July’s jobs report is a welcome surprise but it also means the Federal Reserve will likely continue to raise interest rates in an effort to curb inflation, although Decker does not think the rate hikes will be as high as the recent 75-basis-point increase.

“I don’t see yet that we’re heading for an economic disaster,” Decker said. “Right now, I think the prevailing winds are a slowdown, possible recession, barring any major event.”