Workers Coming Back!!

By ,   March 4, 2016

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Today’s jobs reports yield mixed signals as to the status of the U.S. labor market.  The headline jobs created number blew away the estimate, but average hourly earnings were lower than expected.  There can be a fair amount of revisions to this data, so initial data has to be taken with some salt.  On the whole, the market is reacting positively, suggesting the numbers are still indicative of a strong labor market, but not strong enough for the Fed to accelerate interest rate increases – a “win-win” for investors.  

The most notable component of today’s report, in my opinion, is the read on the U.S. Labor Participation rate.  This data basically estimates the number of people in the U.S. currently employed or actively looking for a job.  The number began dropping dramatically with the housing collapse back in 2008 as many workers involved in construction and real estate were laid off.  The number has steadily declined since then even though the economy has (and employment) has rebounded.  Investors speculate that the participation rate has not recovered because many Baby Boomers are retiring or decided to never come back into the workforce after losing their jobs in the crisis.  A declining participation rate is concerning on an economic level for a number of reasons.  Most importantly, if people are not working, they are not as likely to consume as much thereby limiting economic growth.  Further, depending on their situation, they could require more entitlements thus forcing the government to increase spending.  

The jobs report today revealed that we might be coming to a balancing point.  This is very positive for the U.S. and signals that job conditions are strong enough to attract workers.  Unemployment has fallen below 4.9% which is starting to put pressure on companies to offer more incentives to attract workers.  We have started seeing this in the last 6 months through higher wages.  Some companies are offering flexible schedules and other incentives.  Regardless of the cause, this break of the trend creates more opportunity for the U.S. economy to grow as more people are employed.  

Labor Participation

 

Sources: Bloomberg