Job Seekers’ Optimism Seen Prolonging Low Fed Rates: Economy – Bloomberg 07-23-13

Salient to Investors:

A strengthening economy that cause more Americans to seek work would paradoxically make it harder to lower the unemployment rate to the Fed’s target level. The BLS estimates there are 2.6 million interested in working who remained outside of the labor force because of discouragement, illness, or school.

Joel Prakken at Macroeconomic Advisers estimates that a cyclical rebound in participation will offset structural forces, such as an aging population and rising disability rolls, with the participation rate stabilising around 63.4 percent, while the jobless rate won’t reach the Fed’s 6.5 percent threshold until Q2, 2015, assuming monthly payroll gains of 190,000.

The Atlanta Fed says that just a half percent rise in the participation rate to 64 percent would require average monthly payroll gains of 258,426 to drop the unemployment rate to 6.5 percent over the next 18 months.

Stephen Oliner at the American Enterprise Institute said you cannot rule out that participation is going to rise some, especially in the Fed’s 3 percent to 3.5 percent economic forecast for 2014.

Julia Coronado at BNP Paribas says as long as unemployment remains high, it is hard to see any wage pressures with a large pool of available labor, and estimates the labor force participation rate will rise gradually to 63.7 percent at the end of 2014, keeping the unemployment rate at 6.8 percent in December.

Read the full article at http://www.bloomberg.com/news/2013-07-23/job-seekers-rising-hopes-seen-prolonging-low-fed-rates-economy.html

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