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Thursday, May 2, 2013

Gallup's Job Participation Rate Surges in April

Wednesday's ADP report has many economists lowering their job growth forecasts as they look to the government's jobs report for April to be released on Friday. At the same time, Gallup's monitoring of the jobs situation, based on 30,000 interviews per month, shows a surge in the job participation rate -- the percentage of Americans in the workforce -- creating the potential for a sharp increase in the government's unemployment rate, particularly if job growth is weak. The increase in the participation rate may also help explain why the Fed noted that it could increase, as well as decrease, the amount of money it is pouring into the U.S. economy.

Gallup's U.S. job participation rate hit 68.5% in April, its highest level since Gallup began monitoring it in January 2010, and up about one percentage point from the 67.7% of March and the 67.5% of April a year ago. The participation rate was 68.4% in April 2011 and 67.4% in April 2010.

During recent years, Americans have seen how a declining participation rate has lowered the U.S. unemployment rate as many job seekers gave up looking for work. Right now, we may be seeing the reverse, as optimism about the economy has many previously discouraged Americans getting back into the workforce and seeking jobs in April.

This surge in the workforce comes at a time when most of Gallup's other job measures are showing little or no job growth. For example, part-time jobs are at 19.9% of the workforce and did not increase in April. This is the same level as a year ago.

The same is true for net hiring, as Gallup's Job Creation Index is at 19 in April, essentially the same as the 20 of April 2012.

Even the April increase in Gallup's P2P (payroll to population) measure -- the best measure of real job conditions and the most positive of Gallup's job market measures -- does not appear to be sufficient to lower the unemployment rate once seasonal adjustments are made.

Government May Miss the Surge in the Participation Rate

Given the differences in survey methodology, it is possible that Friday's government report will not pick up the April surge in the participation rate. Further, even if the government does pick up the increase, it will apply seasonal adjustments that may differ from Gallup's findings.

Regardless, if the participation rate continues to surge in the months ahead, the government will eventually pick it up, and it will likely have significant implications for the U.S. unemployment rate. Instead of declining toward the Fed's 6.5% target, the unemployment rate could head in the opposite direction as a flood of new job seekers overwhelms modest job growth. As a result, the Fed could push even larger amounts of money into the economy while the number and volume of calls for increased federal spending has a surge of its own in the months ahead.


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