Cyclically, our indicators suggest cautiousness on the recent improvement in the US labour market.  Seasonal factors have likely added a considerably to non-farm payroll numbers due to a mild winter, and this effect will be absent in the coming months’ readings.

However, looking beyond cyclical variations, a lingering concern is the structural undercurrents of a continuing falling labour force participation rate and a high long-term unemployment rate.  Both paint a rather bleak picture of the US labour market.

The labour force participation rate continues to fall in the US and long-term unemployment as a percentage of total unemployment is high and sticky.

The longer this situation persists, the higher is the risk that the US economy will permanently lose as much as 2-3% of the entire labour force to long-term idleness.

The recent fall in the unemployment rate loses much of its lustre in the light of a continuously depressed labour force participation rate (relative to the average since 1990). As long as this trend does not reverse itself, any improvement in headline labour market indicators must be weighed against the more pessimistic structural backdrop.

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