Earlier today, we learned that U.S. companies added 175,000 new jobs in May.
However, the unemployment rate ticked up to 7.6% from 7.5% a month ago.
This discrepancy can be explained by an increase in the civilian labour force, which climbed to 155,658 million from 155.238 million a month ago.
You see, when job prospects are improving, more people decide that they want to look for work (i.e. enter the labour force).
Still, the labour force has largely moved sideways since the recession, even as the population has been growing. This is why everyone always freaks out about the falling labour force participation rate.
Credit Suisse’s Andrew Garthwaite discussed this in a note to clients earlier this week:
…Typical post-recession recoveries have seen the labour force grow by 1.6% p.a.. However, the labour force has barely risen since the recession ended in mid-2009. One should perhaps not expect a sudden acceleration in the labour force due to the ageing of the baby-boomer population, but we do expect a modest increase. For this reason, our fixed income strategy team believe that a 61⁄2% unemployment rate would not be reached until mid-2015.
Here’s Garthwaite’s chart of showing how the labour force climbed following the last 10 recessions:
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