If you’re looking for a reason to discount tomorrow’s unemployment number, more than 24 hours before it comes out, here it is.
The headline unemployment number is likely to be impacted throughout 2011 by people returning to the workforce, which will be a drag on the improvement of that headline number.
From Societe Generale:
Our own call is that average payroll growth will average at 220k per month in 2011. All else being equal, this would reduce the jobless rate to 8% by year-end, but the improvement likely will be tempered by a rise in the participation rate as discouraged workers return to the labour force (see accompanying chart, left). As a result, we are likely to end the year closer to 8.4%, which would be politically too high a hurdle to begin a rate-hiking cycle.
So not only will the frequent increases in participation impact the headline rate, it will also stop the Fed from joining the “quantitative tightening” cycle before the end of 2011.
Photo: Societe Generale
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