Sunday, December 4, 2011

U.S. Unemployment Rate Declines, Weak Labor Participation Rate Suggests Structural Change

On Friday, the U.S. Department of Labor announced that the unemployment rate fell to 8.6%, from 9.0%, and payrolls increased by a weaker than expected 120,000 in November. At the same time, the labor force participation rate (people in the U.S. either working or looking for work - 16 years and older) was 64% - close to the lowest level since 1984, and increases in hourly wage and number of hours worked continue to be muted.

Global markets, while volatile, have benefited from strong corporate profits and the effects of U.S. Federal Reserve stimulus efforts. The unemployment rate may continue to decline as job seekers exit the market, but a recovery in the labor participation rate (which has been in decline since 2000) seems less certain. Improving the labor trends will reduce the risk of stagnation in economic growth and corporate profitability.

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