Monday, February 7, 2011

Continuing Declines in Labor Force Participation Rate

The plot above shows the 4 week moving average of the seasonally adjusted weekly Initial Claims numbers, and that same curve shifted forward 99 weeks, showing that the peak number of '99ers' is now rolling off the back end of their extended benefits. There appears to be a relationship with the decline in the labor force participation rate also shown above, which looks a tad strange as it is a monthly series and ICSA is a weekly series.

We can see that the labor force particpation rate began to decline around six months to a year after the ICSA began to ramp up.

UEMPMEAN appears to have a strong relationship with the declines in the labor force participation rate, and the average duration is likely to continue to rise as it appears the probability of remaining unemployed has become in part of function of unemployment duration... the longer you are unemployed, the likelier you are to remain that way.

Both of these suggest to me that we will continue to see declines in the labor force pariticipation rate... which might well drive the U-3 headline unemployment rate but for all the wrong reasons.

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