MICHELLE MEYER: The labour Force Participation Rate's Freefall Is About To Stop

freefall parachute

We recently gave you UBS economist Drew Matus’ opinion of why the labour force participation rate  — the size of the labour force as a percentage of the overall population — is falling.

Basically, Matus said it’s due less to an anemic economy than shifting (especially ageing) demographics: there are just more old people still working in America these days.

Now, as noted by Bill McBride, Merrill Lynch’s Michelle Meyer has weighed in with her own take, and she basically agrees: 

The two primary secular trends are the decline in the LFPR among the youth population and the rise among 55+. The LFPR for 16 to 19 year olds plunged to 34.3% last year from 52% in 2000. While this may have been accelerated by the past two recessions, we believe this is a permanent trend. On the other end, the LFPR of the older population has increased, likely reflecting higher life expectancy, less confidence in social benefit programs and loss of wealth from the Great Recession.

Meyer goes one step further and offers a projection of where the rate will go from here.

Her answer: sideways, thanks to the cyclically improving economy. Here’s her chart:

She writes:

…we forecast the LFPR will slip slightly this year, but with a stronger recovery under way next year, the LFPR should start to level off some and potentially increase beginning in 2015.

The bounce-back won’t happen right away, but it should be enough to partially ease the downward pressure from pure demographics, she says.

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