🇺🇸We expect easing #labor supply constraints & historically tight labor market conditions will draw people back into the US workforce in the coming quarters
We see the US labor force participation (LFPR) rate gradually rising from 61.6% to around 62.6% by the end 2022
Short 🧵
While the LFPR recovery is expected to undershoot the pre-pandemic rate (over 63%), the shortfall mostly reflects an aging population.
We find that the drag from baby boomers retiring (or exiting early) has offset the boost from sidelined workers re-entering the labor force.
We estimate that about 30% of the LFPR shortfall, or 0.4ppt, is structural (aging of the US population).
Remaining 70% attributable to early retirement, lost immigration, & some temporary headwinds stemming from lingering Covid fear, childcare responsibilities, & discouragement
Marked improvement in the public health situation, return to in-person schooling, vaccination of children aged 5-11 & expiration of emergency unemployment benefits should create an incentive for hesitant workers to re-enter the workforce.
Rebounding immigration should also help.
Historically, the participation cycle has tended to lag the unemployment cycle, reflecting the time it takes to heal some of the recession scars. But cyclical forces from strong labor demand and hot wage growth will eventually pull disenfranchised workers back into the workforce
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🇺🇸 Economic impact of the infrastructure & #BuildBackBetter plans.
Our November baseline forecast includes both the bipartisan #infrastructure package and a $1.8tn BBB bill consisting of spending on social programs and climate initiatives via @OxfordEconomics
The $1.2tn #Infrastructure and Investment Jobs Act (IIJA) provides $550bn in new spending over the next 10 years.
We estimate it’ll boost #GDP growth by 0.1ppt in 2022 and 0.3ppt in 2023, with a cumulative 150,000 new jobs by the end of 2023.
Given that shovel-ready projects are a myth, we anticipate government outlays will only increase gradually, and the impact on #inflation will be minimal
- NEW qualitative outcome-based forward guidance for QE program that links the horizon to max employment + price stability goals
- no change to composition or size of QE, but a floor of "at least" $120bn per month
The latest economic projections:
- Stronger near-term growth expectations
- Quite strong #GDP expectations for 2021
- Lower unemployment projections: below 4% in 2023
- #Inflation only a tad firmer: below 2% till 2023
- #Fed funds rate at zero through 2023
The #Fed's #GDP growth & #unemployment forecasts help explain why the Fed decided not to increase size or composition of QE.
They foresee rather strong growth in 2021 with a rapid decline in the unemployment. I wonder what their labor force participation rate assumptions are.