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Unemployment Rate Unlikely to Budge until 3mn New Jobs Created

June 30th, 2010 Michael McDonough

Disheartened job seekers who fled the labor market in mass during the height of the recession have begun to return putting pressure on the US unemployment rate.   Based on a simple interpolation the U.S. labor force today should total 157.2mn, however due to the exodus of job seekers the labor force presently amounts to only 154.4mn a difference of 2.8mn. Calculating the unemployment rate on this ‘would-be’ labor force would increase the ratio to 11.3% from its current level of 9.7%.  Meaning until the nearly 3mn gap in the labor force is closed the unemployment rate will remain under constant pressure, especially if job seekers return fast than jobs are being created, a very likely scenario.  It’s not surprising that the current consensus forecast for June’s unemployment rate is for an increment to 9.8% from 9.7%. The charts below show the ‘would-be’ labor force level and the estimated unemployment rate based on this level versus the actual rate.  Keep in mind that the recent upswing in non-farm payrolls has benefitted from U.S. census hiring, and should begin to recede in June.

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