After the massive amount of layoffs and job losses from the financial crisis in 2008 many economists believed that the nations unemployment rate would remain high for years. Not withstanding the headlines coming out of Europe focusing on Greece, Spain and Italy the jobs reports have been the source of much angst among investors the past few years. Their is however mounting evidence that the Jobless rate could fall under 8% much faster than anyone previously thought.
The economy has been creating more jobs since last fall, producing an average of 223,000 new jobs a month in December and January. According to a Bloomberg survey, economists are predicting that the February report will show a net gain of 204,000 jobs on average. Payroll processor Automatic Data Processing announced today that private employers added some 216,000 jobs in February.
These increases, while great may not tell the whole story behind the unemployment rate drop from 9.1% in August to a more palatable number of 8.3% in January. Some economists feel that the real reason behind the dip is not there are suddenly so many new jobs – its that there are fewer people than expected looking for work. Three years into the recovery after the Lehman collapse, the unemployment rate has dropped even though new job gains are far lighter than in past bounce backs from economic crisis. We could see the unemployment rate dip below the important 8% mark prior to the elections later this year, and it could come with fewer net job gains than what was believed to be needed to produce this result.
This could occur because the percentage of the population that’s working or seeking work is shrinking, and some experts believe that it is not likely to go up even after if the labor market continues to show improvement. One factor is the estimated 1.1 million workers whom have simply given up and will not continue to seek employment. Another is the increasing number of retirements among the Baby Boomer generation, a demographic shift that is converging with a slow accelerating economy.
Experts focused on where the labor rate may be headed also study a key factor: the labor force participation rate. This number is the percentage of the civilian population that is not in the medical or penal institutions. In January, this figure produced its lowest number in more than 30 years of 63.7%. It was more than 66% in 2008, prior to the collapse of the financial markets. If the job creation rate stays the same the unemployment rate will drop, if additional jobs are created it will drop even more.
During the recession many experts said that the economy would need to add at least 150,000 jobs a month to keep up with the natural growth in population. That is why many economists projected the rate to hold at 8.5% with that many jobs being created on average last year through November. Now it might be that these numbers were inflated and off the mark for what would be needed to grow the labor force.
The slowing in the workforce growth can be chiefly attributed to the Boomer generation’s aging. Boomers drove the increase in the labor force in the 1960′s on, in part because so many women from the generation worked. According the US Bureau of Labor Statistics only 64.5% of Americans older than 15 will be working in 2018, even if the economy has grown by then. The US will produce 20.5 million new jobs by then according to the agency, with only 10.5 people joining the work force.
How fast the unemployment rate will drop is of course open to numerous debates. However, for the average investor it might be a good idea to brush up on some of the better staffing agency stocks. Better times could be right around the corner.
