Sifting through the US ‘Employment Situation Summary’ always makes for interesting reading. Released once a month, most coverage focuses on the headline ‘non-farm payrolls’ which surprised to the upside last month. However, an analysis of the underlying unemployment and participation rate data can give some deeper insights on the direction of monetary policy.
The participation rate measures what percentage of the population are working or actively looking for a job. This has dipped since the pandemic. There’s lots of theories but likely a combination of an ageing workforce, an accumulation of savings, asset price increases (higher pension and house valuations) led to people leaving the workforce. The latest participation rate figure of 62.6% is still below the February 2020 level. Ultimately, for unemployment to materially increase (important in the context of the Fed’s dual mandate of stable prices and maximum employment) we would have to observe a fall in the number of jobs being created and/or a marked increase in the number of people looking for a job. Whilst there is always a lag in feeling the impact of higher rates, Friday’s economic release did little to make the market believe we’ll see a significant rise in unemployment in the coming months.
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