Has the Labor Force Finally Stopped Shrinking?

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Source: Thinkstock

Source: Thinkstock

The U.S Federal Reserve, which has been searching for signs of improvement in the labor market for the past five years, may have finally found what it is looking for. Judging by data from the Bureau of Labor Statistics and survey results from research and analytics firm Gallup, the employment picture in the U.S. is starting to look like something resembling healthy.

The official unemployment rate for May, as published by Bureau of Labor Statistics, was flat at 6.3 percent (official data for June will be available on Thursday), while Gallup’s seasonally adjusted unemployment rate fell dramatically from 7.2 percent in May to 6.5 percent in June. The difference in the two results could be due to difference in the survey methodologies, but broadly, Gallup’s survey results are aligned to the BLS data.

The Fed anticipates an unemployment rate in a range between 6.0 and 6.1 percent for this year, after having revised its forecast downward from an earlier estimate of 6.3 percent, which was made in March. The Fed has been fretting over poor labor market conditions for quite some time now and policymakers have made it very clear that they will not raise the benchmark federal funds rate until economic growth is stable enough to support full employment. The Fed expects the unemployment rate to eventually fall to somewhere between 5.4 and 5.7 percent by 2015.

But the overall, employment picture is too large to be captured in just the headline unemployment rate. When measuring the health of the labor market, one alternative parameter that people look at closely is the labor force participation rate, which is the pool of the total population that is either actively employed or is looking to be employed. According to the BLS, the labor force participation rate was flat at 62.8 percent in June, matching the lowest level recorded in a decade.

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