Labor Force Participation Rate
Even though I’ve already done two articles on Friday’s labor report, there’s still more to unpack. The ADP report showed 235,000 jobs added. For an apples to apples comparison with the BLS report, you look at the private payrolls. Month over month, the private payrolls were up 287,000. While both will be revised, as of now it looks like the BLS number was better than almost anyone expected. Another interesting point is the U6 unemployment rate was flat at 8.2% just like how the official U3 rate was flat. You need to dig deeper to understand this report.
Last month the labor force participation rate was 62.7%. The estimates for February were between 62.6% and 62.8%. In the February report, it beat expectations as it was 63%. This was a big month for workers coming back from the sidelines and into the labor market. If you look at the chart of the labor participation rate, this doesn’t look like a big deal because there have been a few times in the past few years where it has hit 63%. It has been between 62% and 63% for about 4 years. However, that’s the wrong chart to look at.
The more informative chart is the one below which shows the labor force participation rate for workers ages 25-54. As you can see, it went up like the employment to population ratio for prime aged workers. The participation rate was up from 81.8% to 82.2%. That’s the biggest monthly increase since November 2013. If you looked at this chart before this report like I did, it told you the labor market has plenty of slack left. That gave you an edge over most economists who are looking at the unemployment rate. You’ll gain another edge when the chart shows you when the slack runs out. The prime aged participation rate peaked at 83.8% in 1990, at 84.6% in 1999, and 83.4% in 2007. Usually it peaks about a year before the recession starts. It seems like we’re about 1-2 years away from the peak which means a recession is coming in 2-3 years. The biggest wage growth gains of the cycle should come in 2019.