‘Participation Rate’ To Be Key Focus With Unemployment Rate This Friday

May 29, 2012 by Jon C. Ogg

This Friday will be close to marking the mid-year progress report on jobs created and on the unemployment rate.  The expectation from Bloomberg shows an expected 8.1% unemployment rate for May, which would match the report from April.  Bloomberg has a consensus of 150,000 jobs created on a nonfarm payrolls report, with one estimate as low as 95,000 and one as high as 206,000 as of Tuesday. Private payrolls are expected to be up 164,000 for May versus 130,000 in April.

The economy needs to be generating closer to 300,000 jobs per month right now if we want to get back closer to a ‘full employment’ economy in the coming years.  150,000 hardly scratches the surface in reality.  This is ‘graduation month’ as well, so many high school and college graduates will now be out looking for permanent and part-time work.

What will be interesting here is the labor force participation rate.  This figure has been diving and sits at a three decade low (see chart below).  Some estimates are out there that a whopping 80% of the gains in the reported drop in the unemployment rate from almost 10% down to 8.1% currently have been solely due to the rapidly declining participation rate. This peaked above 67% in the late 1990s and early 2000s, but the latest report showed a participation rate of only 63.6%.

The traditional participation rate declines have been due to retirement, death and disability, women becoming at-home moms, and other issues.  Now the decline is often attributed to discouraged or untrained workers giving up and ‘opting out’ of the labor force.  There obviously have to be other considerations, but now disability insurance claims are going through the roof.  One report noted, “About 12.8 million disabled people receive disability benefits. Some 7.1 million get Social Security disability, 4.2 million get Supplemental Security Income and 1.5 million get both. Disabled workers get an average of $1,065 a month from Social Security and $498 a month from SSI.” 

With the news in Europe meeting many companies lowering their targets or only maintaining an outlook for low growth, it is hard to expect that the numbers will have many upside surprises.  If the report is good due to a lower participation rate you might as well go ahead and expect that the conspiracy theorists will be out in full force.  After all, this is an election year.

Here are the pre-Friday reports (all due Thursday) that will further shape the expectation from the Labor Department this Friday:

  • Challenger Job Cuts May at 7:30 AM EST
  • ADP Employment Change at 8:15 AM
  • Weekly Jobless Claims from the Labor Department at 8:30 AM

JON C. OGG