First, let’s take a look at the official statistics. While headline unemployment has been declining for the last three years, looking at the official unemployment rate as a signpost for the overall health of labor markets is highly misleading. Indeed, both investors and the Fed itself are increasingly focusing on a broader array of labor market metrics. Chiefly, and unfortunately, much of the decline in the unemployment rate can be attributed to the fact that more and more people are dropping out of the labor force (shown in the chart below via the decline in the participation rate). That is hardly the sign of a thriving employment environment. The slide in the unemployment rate is partly due to the workers getting discouraged, that is, getting out of the labor force. This is not a good sign. This, along with anemic wage growth, has had an adverse impact on disposable income.
Posted on: Thu, 08 Jan 2015 01:55:42 +0000