I BELIEVE IT IS ALL ABOUT THE LABOR PARTICIPATION RATE

Many times I have discussed the labor participation rate (LPR).  The LPR is quickly rising in stature as the unemployment rate indicates an economy close to full employment.

I have often remarked a major reason for today’s low unemployment rate is result of the large number of workers who left the workforce for a myriad of reasons including skill mismatch and transfer payments.  If these workers were still counted in the workforce the unemployment rate would be closer to 8% versus 4%.

The LPR is up about 1% since 2016, currently at 63.2% versus 62.7% six months ago.  It is however considerably lower than the 67% sustained a decade ago.  In my view the rising LPR is a major reason why annual GDP expanded by 3% for the first time in over a decade as more workers reentering the workforce which is and will continue to support economic growth.

A rising LPR will also begin to rectify income inequality, supporting the demand side of the economy by boosting household income.  It will also energize the proverbial Animal Spirits for in my view the vast majority of people wish to work as such has the intangible benefits of increasing self-esteem and self-worth.

Speaking to this point a third tier data point, the Bloomberg Consumer Confidence Index rose to the highest level since 2000 because of jobs.

In my view the Federal Reserve lost credibility in its January flip flop about monetary policy.  Whether this U-turn was the result of political pressure [doubtful] or cascading financial markets [presumably], the Central Bank will need some justification to maintain current monetary policy if hiring data and wage data meets or exceeds expectations.  It can rely upon the rising LPR to justify the current patient mantra stating there is a large pool of untapped workers.

There is little argument that a rising LPR will support economic growth for it is generally accepted that for each 0.1% to 0.3% increase such increase will support another year of 3% growth while mitigating potential wage pressures.

Speaking of which, wages are rising at the fastest pace in 10 years but such increases are anemic when historically viewed compared to the prevailing unemployment rate.

The data is released at 8:30 and analysts are expecting a 63.2% LPR, a 3.9% unemployment rate, a 180k and 175k increase in nonfarm and private sector jobs, a 0.3% increase in hourly earnings and 34.5 hour work week.

The data can potentially impact the markets.

Speaking of which, equities slid again on growth fears the result of comments from the ECB.  The 200 day moving average was broached as some of the mega sized technology firms that have protected the market from suffering big drawdowns [and were the entities that drove the market higher] came under pressure.

Last night the foreign markets were down. London was down 0.85%, Paris down 0.45% and Frankfurt down 0.69%.  China was down 4.4%,  Japan down 2.01%  and Hang Sang down 1.91%.

The Dow should open considerably lower on global growth fears.  Will the 8:30 data amplify or negate some of these fears?  The 10 year is unchanged at 2.64%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.