But, when I last looked at it, after data revisions that came out in February, the unusual gains in employment disappeared in the revised data. NC still saw very large decreases in unemployment, but they now appeared to be almost entirely from a decrease in the labor force.
This suggested that, if the same trend was going to hold for the US after the end of EUI in December 2013, we would see an acceleration in the declining Unemployment Rate, but that this would come substantially from declining Labor Force Participation. Further, I noted that, since EUI participation seems to skew older, that to the extent LFP did dip, that decline would come in the older age groups. The decline in LFP that happened earlier in the recession skewed younger, and we should see this LFP in the younger ages recover or level out, even as EUI ended.
The July employment report seems like a good place to review the data and see what has actually come to pass.
Here are the national labor force participation and employment-population ratio from 2011. These results look similar to the original pre-revision North Carolina data. There has been a strong rebound in EPR since the end of 2013, and LFP has dipped slightly from trend. The dip in October 2013 was related to the government shut down, so it is a little difficult to identify the causes, but LFP has fallen below trend at a point in the cycle where we would expect it to start recovering cyclically. (Note, I just placed the trend lines in the graph manually, with the LFP decline approximating the demographic decline I have found in other analysis.)
Here, I break out LFP and EPR by age group. I use weighted moving averages to clean up the noise a little bit. Here, we can see that, within the age groups, generally, LFP had turned down for most of 2013, and has flattened out in 2014. EPR had flattened out in 2013 after recovering in 2012. This is odd, since GDP improved in 2013, compared to 2012. But, across age groups, there has been a distinct shift upward in both LFP and EPR in 2014. In a previous post, I noted the unusual rise in unemployment rates for workers above 45 years old during the EUI program. There was a skew to older workers in EUI, and I think here we can see a slightly sharper change in the 45-54 age group in LFP and EPR. But, whatever is affecting labor markets, whether EUI or the myriad other factors, the bulk of the effect is across age groups.I don't think we can attribute the drop in LFP in 2013 to the impending end of EUI because there was not an unusual decline in EUI beneficiaries in the months leading up to the termination of the program. So, this data gives an even more positive picture of employment trends coincident with the end of EUI than the original data did at the end of the program in North Carolina. And, given that this data comes out of the Current Population Survey, it won't be revised.
On another topic, which I hope to visit soon in another post, this should tell us something about potential unemployment numbers moving forward. There is a lot of sandbagging on unemployment forecasts because of the expectation that workers will be moving back into the labor force, so that even though employment might increase, the unemployment rate will moderate. But, as we can see here, a strengthening trend in LFP has already been happening while the rate of decline in the unemployment rate has been accelerating.
In past cycles, there have been times where an increase in LFP coincided with a flattening in the trend of the unemployment rate. But, this has tended to happen at full employment levels. With slack in the labor market, I expect to see a continued comovement in these measures. There are complementarities within the economy that, in a context that isn't constrained by capacity in the labor market, could mean that increasing LFP is actually partly responsible for the accelerating decline in the unemployment rate. If this is the case, there could be some significant positive surprises ahead in both employment and GDP.
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