With the Fed now targeting unemployment, the market is now understandably even more focused on US labor market releases. The strong fall in the unemployment rate in the US is certainly good news and there is even growing evidence that full time employment is now growing at the expense of part time employment. However, the average duration of unemployment in the US is still sticky which suggests that the underlying improvement may not be so strong.

Specifically, the improvement masks the fact that the declining US labor force participation rate is the main driver of a lower unemployment rate since 2008. In the lower chart we show the results of a small study comparing the impact on the change in the unemployment rate from 1968-2012 relative to the impact since 2008. As we can see, the impact from a declining labor force participation rate is much higher relative to
the change in employment.