United States: Participation drop masks slack – ABN AMRO

ABN AMRO’s Rogier Quaedvlieg highlights that US labour-market conditions are weaker than headline unemployment suggests, as rapidly declining participation is holding the rate down. He notes that payroll growth has slowed sharply, household employment is falling, and only a small part of the participation drop is demographic. Behavioural withdrawal, especially among older and younger workers, risks a quick rise in unemployment if job creation stays weak.

Participation tailwind hides labour slack

"Payrolls slowed sharply in June, confirming our earlier warning that frontloaded hiring would likely be followed by payback."

"Last week’s labour-market report delivered the kind of payroll print we warned about in our global monthly, even if the timing was earlier than expected."

"Despite the weak household employment numbers, the unemployment rate has remained stable and has even declined, dropping below 4.2%."

"Participation has fallen by 0.9pp since December, from 62.4% to 61.5%."

"Had participation changed only because of demographics, the unemployment rate would now be around 5.2%."