NFP In Focus Given Participation Rate Lag

The Fed has a dual mandate to achieve price stability and maximum employment. In this regard, we have seen progress on both fronts. However, the employment market still has room to move before the Fed will be comfortable in terms of its mandate. A broad measure of unemployment in the US is the U6 unemployment rate (as opposed to the often quoted U3 measure). U6 includes discouraged, underemployed, and unemployed workers.

U6 Unemployment
Past performance is not an indicator of future results

From the above, we can see that the trend has normalised since the high of 22.9% in April 2020, but still has a little way to go. The print was 7% pre-Covid but is now higher at 8.5%. Initial jobless claims have also shown good signs of improvement:

Initial Jobless Claims
Past performance is not an indicator of future results

Initial claims have dropped from the high of 4.8m in April 2020 with the last print at 269k. Pre-Covid this number was around 220k. The related metric of continued claims has also normalised substantially:

Continued Claims
Past performance is not an indicator of future results

This series reached a high of 23m in May 2020, with the last print at 2.1m. The trend is continuing down towards the pre-Covid number of 1.75m.

However,given the improvement in these key labour market measurements, the Fed is faced with the conundrum of a lagging participation rate.

Labour Force Participation Rate
Past performance is not an indicator of future results

This series measures the ratio of the total labour force to the working population. I.e., the amount of the working-age population that is either employed or actively looking for employment. Discouraged workers are omitted.

With the strong recovery in the first 3 measures, one wonders why the US participation rate has lagged other developed countries. Moreover, this lag is likely a worry for the Fed, considering its dual mandate. This is also a potential reason why the Fed is pushing back on any rate hikes, urging a patient approach given the announced tapering. It also makes the non-farm employment change (NFP) a metric of interest.
Non-Farm Payrolls
Non-Farm Employment Change
Past performance is not an indicator of future results

The print has missed consensus over the last two months and the trend is heading down. I.e. jobs are being created but at a declining rate. Given the Fed's dual mandate and the lag in the participation rate, market participants will watch this data with a keen eye. Another disappointment, may man further doveish signalling regarding interest rates. However, a good number here is likely to be celebrated by policymakers and have implications for rate hikes ahead.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


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