America Is Leading In This Category

The labor force participation rate fell 0.1% in January to 61.4%. It’s down from 63.3% in February 2020. The chart below shows the contribution of the change in the participation rate by age group. The initial crash in the spring of last year was driven the most by those from 25 to 34. It was basically younger and older workers that took the hit. This makes sense because younger people are more likely to work in low-paying jobs which are largely in leisure and hospitality which was crushed by the recession. Also, people 55 years old and older are more at risk from COVID-19.

As you can see, the weakness in the labor force participation rate was maintained the most by older Americans. It’s possible some people who lost their jobs in their 60s will never get back in the workforce. If people retire earlier, that will have a major impact on the overall rate because the population is aging.

About 2 million people left the workforce to retire in 2020. That’s more than double the amount who left in 2019. This could cause a 0.4% drag on the labor force participation rate according to Oxford Economics. They expect the overall rate to rise to 62.4% in Q4 2021 and 62.6% in Q4 2022. However, they expect it to start falling afterwards because of demographics. In the long term, automation should have a big impact on the participation rate.  

Nice Flash PMI

The American Markit flash PMI for February was very good. The composite index rose 1 tenth to 58.8 which is a 71 month high. That increase was driven by services that were up 0.6 to 58.9 which is also a 71 month high. As you can see from the chart below, the services index in America is vastly outperforming the services index in the UK, Japan, and Europe. Their PMIs are all below 50. It helps that America’s vaccination rollout has been among the more successful in the world. 

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