Market Commentaries

  • Understanding the Labor Force Participation Rate


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    20140708 - Stock Market Update - ChartSources: Rates Data —Bloomberg Markets as of 7/7/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers and Morningstar as of 7/7/14


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    Understanding the Labor Force Participation Rate

    Each week the U.S. Bureau of Labor Statistics releases their Employment Situation Summary which slices and dices the number of employed and unemployed workers into various factions. While there is a wide range of data available, the most widely covered aspect of the report is the U-3 unemployment rate, which, as of the latest release on Thursday, July 3 came in at 6.1%. This latest reading is the lowest level this rate has been since September of 2008 and certainly a major improvement over the 10% mark hit in October of 2009.

    While the U-3 rate is the most widely covered number, the participation rate is starting to give it a run for the money. The participation rate, defined as the percentage of workers actively seeking employment relative to the overall workforce, is becoming the center of focus as economists attempt to put the improving job picture into context. The major concern is that workers who were laid off have given up looking for work and are not considered when calculating the unemployment rate. While this is a worthy concern, the other segment of our population not considered “actively looking for work” and driving our participation rate lower are those that are now retired. As the baby-boomer population continues to age, the number of retirees in the U.S. will increase and the participation rate will witness a structural change by becoming lower. So while the participation rate does stand at 62.8, its lowest level since January 1978, the underlying demographic shift of baby-boomers leaving the workforce cannot be ignored. We, at Hennion and Walsh, encourage investors to consider a multitude of economic data points when making decisions and strongly advise against making decisions based on any one data point in isolation. For ideas on how we are managing client portfolios in this economic environment, please feel free to contact your Financial Advisor or a member of our Asset Management Team at (800) 836 – 8240.


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