The Labour Force Participation Rate Tanked -- Here's The Not-So-Scary Reason Why

The
October jobs report is out, and the numbers — while noisy due to the government shutdown — were generally strong.

But some uninformed sceptics are already freaking out about the labour force participation rate (LFPR), which plunged to 62.8% from 63.2% a month ago. During the period, a whopping 720,000 people apparently dropped out of the labour force.

The falling participation rate — which comes from the BLS’s household survey — has helped bring the unemployment rate — which also comes from the household survey — fall during the economic recovery.

For now, the drop in the the LFPR should be seen as a temporary symptom of the shutdown and not a major shift in the labour market. Capital Economics’ Paul Ashworth explains:

Apparently, the near three-week Federal government shutdown had little, if any, impact on payrolls. Manufacturing increased by a healthy 19,000, construction increased by 11,000 and retail increased by 44,000. Federal employment fell by a modest 12,000, because those workers affected by the shutdown received their back pay when they returned, which means they were counted as employed in the establishment survey.

In contrast, the alternative household survey defines employment slightly differently and, as a result, those Federal workers were not counted as employed or in the labour force. That explains the 720,000 drop in the labour force and the 735,000 decline in the household survey measure of employment. As a result, the unemployment rate ticked up to 7.3%, from 7.2%, and the participation rate plummeted to 62.8%, from 63.2%. With those Federal employees back at work now, however, all of this will be reversed in November’s report.

Now, if these numbers don’t reverse, then we’ll actually have something to talk about.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.