Sunday, March 27, 2011

U.S. unemployment drops, but hourly wages and labor participation remain flat

On Friday, the U.S. Department of Labor announced that the unemployment rate fell to 8.8%, from 8.9%, and payrolls increased by 216,000 in March. Strength in healthcare, hospitality, manufacturing and mining sectors was offset by layoffs by state and local governments. At the same time, the labor force participation rate (people in the US either working or looking for work - 16 years and older) was 64.2% for the third month in a row - the lowest level since 1984, and increases in hourly wage and number of hours worked continue to be muted. In a Financial Times interview, Minneapolis Federal Reserve president Narayana Kocherlakota said unemployment should drop to 5-6% in coming years but was unsure about a recover in the labor participation rate.

MY TAKE: Over the past 6-7 months, global markets have benefited for strong corporate profits, along with the effects of the Federal Reserve’s QE2 monetary policy. In the longer term, if the labor participation rate and wage trends do not improve, the implications of structural changes to income distribution must be considered.

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