The Rebound We Just Saw In Labour Force Participation Is A Very Rare Event

The U.S. labour force participation rate rose to 63.2% in March from 63.0% in February, according to data released by the U.S. Bureau of Labour Statistics on Friday in the monthly jobs report.

As illustrated in the chart above, the 0.4 percentage-point gain over the past three months is something of a rare event — in the last 22 years, it’s only happened 5 times.

“We’re sceptical the upward trend in participation will continue,” says Neil Dutta, head of U.S. economics at Renaissance Macro Research.

“Instead, we expect entrants into the labour force to roughly offset retirees. Over the last year, the labour force has expanded by 94,000 per month. The number of retired workers filing for Social Security? 94,512 per month over the last year.”

The rise in labour force participation brings into focus an interesting tension between two powerful forces: the retirement of the baby boom generation, which exerts massive downward pressure on the labour force participation rate, and improving economic fundamentals, which may be drawing discouraged workers back into the labour force.

“This is a good sign suggesting that people believe they can find work or — with the cancellation of extended unemployment benefits — need to,” say economists at UBS.

“An even better sign is that the labour force is expanding without boosting unemployment.”

Which of these two forces will win out could be a big story for the labour market in 2014.

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