US jobs Jul15Yesterday’s US jobs report showed people are continuing to exit the workforce whilst earnings remained flat.  The key number is the participation rate, which measures the percentage of people who have a job.  As the chart above shows, this has now been falling for nearly 20 years:

  • The peak rate for total employment was back in 1997, when it was 68% versus today’s 63.1% (black line)
  • It is now back at a level last seen nearly 40 years ago in 1978, when far fewer women worked
  • The percentage of men working peaked at 88% at the end of WW2, and is now just 69.8% (blue)
  • The percentage rate for women nearly doubled from WW2 to peak at 60% in 1999, but is now back at 56.9% (red)

Sadly, both US Administrations since 2000 – Bush and Obama – have failed to tackle the hard issues that would encourage the participation rate to increase once more. They have instead preferred to pretend that monetary policy can solve the problem. And in turn, the Federal Reserve has targeted ‘soft numbers’ such as the overall number of people employed, and the jobless rate:

  • These are ‘soft numbers’ because the rise in the number of immigrants is a very important factor in increasing the absolute number of jobs
  • Similarly, the jobless rate doesn’t only decline when more people get jobs – it also declines when they give up searching for a job.

The participation rate is therefore the key number that presents the true state of the jobs market.

In the end, reality will force a future Administration to tackle this critical issue.  We can only hope that it happens sooner, rather than later.