Semiannual Outlook for Q2 2016: A Strengthening Employment Rate

July 20th, 2016

The state of the U.S. economy – especially the employment rate – has been in the spotlight as Election Day 2016 approaches. Although there is merit to both the Republican and Democratic job market narratives, overall the employment climate is improving.

The most common measure is the official unemployment rate (U3), which was at a seasonally adjusted rate of 4.9% in Q2 2016 – the same as Q1 2016. The U3 is just the tip of the iceberg with regard to the job market, and the picture changes with additional context.

The following metrics gathered from the Federal Reserve Bank of St. Louis allow us to analyze the employment climate and its possible effects on the ARM industry:

Current Employment Snapshot

All data, except for the population, are seasonally adjusted to account for standard seasonal fluctuations.

There is a declining trend in labor force participation, driven by the increase in unemployed individuals not seeking employment – about 1.1 million since this time last year. The decrease in the labor force participation rate partially drives the U3 decline; individuals who exit the labor force are no longer accounted for when calculating the U3. The effect is a lower U3 rate simply because fewer individuals are seeking employment, which is not good for the economy.

However, there are two reasons why employment is actually strengthening despite the increase in individuals not seeking employment:

  1. Employment itself has grown by nearly 4.5 million individuals over the past two years, leading to an increased employment-to-population ratio. This means there are more employed individuals relative to the non-institutional population.
  1. The total unemployment (U6) rate, which includes part-time employees and accounts for individuals marginally attached to the labor force, fell more rapidly over the past two years and converged toward the U3 rate. While individuals exiting the labor force partially account for the U6 drop-off, its rapid pace suggests a higher percentage of those currently employed are full-time.

Overall, the ARM industry will benefit from these ongoing trends. Despite a decline in the labor force participation rate, a greater percentage of individuals are obtaining full-time employment than in recent memory, which makes them more likely to spend money and accumulate debt. Additionally, consumers will be more able to repay their debts, leading to quicker repayment processes and lower operating costs for ARM companies under current market conditions.

Kaulkin Ginsberg will be providing semiannual employment updates with analyses tailored specifically to the ARM industry. To access these updates and other in-depth market data, please contact us about becoming a KG Prime member.

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