Unemployment and Labor Force Participation rates - Nomura

Ross J Burland FXStreet

Analysts at Nomura explained that they expect the unemployment rate (UR) to remain unchanged at 4.5% in April.

Key Quotes:

"Recall that the drop in the UR in March to 4.5% from 4.7% in February was largely driven by extremely large gains in household employment in February and March. We do not expect those outsized household employment gains to continue since the 12-month change in household employment lies well above the 12-month change in payroll employment. A risk to our UR forecast is the UR rebounding to 4.6% in a statistical reversion to its mean.'

"The labor force participation rate (LFPR) has stayed roughly flat over the past three years, and we expect this trend to continue into April with the LFPR staying steady around 63.0. We estimate that the LFPR may fall 0.2pp per year because of aging effects, which implies that LFPR has been increasing for certain groups to offset this aging-gravitational effect. With unemployment plunging to new lows and wages accelerating (at least according to the ECI as discussed more below), we expect a continued minor flow of nonparticipants back into the labor force that will just offset the aging effects.

One group that has been rejoining the labor force is prime age (ages 25- 54) men and women without a college degree. This group accounted for about half of the overall decline in the LFPR from December 2007 to March 2015. We estimate that this group’s LFPR has improved by about 0.6pp since January 2015. This gain is still a far cry from the 3.7pp drop during the recession, but it does provide some ray of hope for this group and a possible reason why the LFPR may not fall in the coming months.

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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