Understanding the Labor Force Participation Rate07-08-2014 |
Sources: 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
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.
Important Information and Disclaimers
Past Performance is not a guide to future performance.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest U.S. companies based on total market capitalization and represents about 98% of the investible U.S. Equity market.
ML BOFA U.S. Corp Mstr [Merill Lynch U.S. Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire U.S. corporate bond market over time.
ML Muni Master [Merill Lynch U.S. Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.