Client Note: HPS Employment-Election Benchmark (March Jobs)
By Matt McDonald, March 31st, 2011:
Behind the Libya and reelection headlines in the Quinnipiac polling released yesterday were troubling numbers for the President on the economy: just 34 percent now approve of his handling of the economy, while 60 percent disapprove. This is an all time low just as the President is set to launch his reelection campaign.
Whether those numbers improve will likely depend on job creation going forward. The Hamilton Place Strategies Employment-Election Benchmark projects that for the unemployment rate to drop below 8 percent by Election Day 2012, the economy will have to create 185,000 new jobs per month going forward.
This projection is down from last month’s benchmark of 190,000 new jobs (see last month’s analysis here), and continues a string of modest good news on the jobs front for the President.
As we have noted in previous months, the complication to the jobs picture is the number of people who have dropped out of the labor force. During the recession, the labor force participation rate dropped to 64 percent from its 20-year average of 66 percent. As the economy improves, these workers will once again be actively looking for work and will push the unemployment rate comparatively higher.
Last week we saw a new perspective on this dynamic in a Congressional Budget Office report projecting labor force participation and growth rates over the coming decade. Between 2010 and 2012, CBO projects labor force growth of 2.9 million people. To meet this mark over the next 20 months, this would mean 130,000 new entrants to the labor force monthly. This is slightly above the HPS assumption of 120,000 new entrants monthly and would mean that the economy would instead need to create 195,000 new jobs each month to drop below 8 percent unemployment by Election Day.
The CBO report also projected that the current decline in the labor force participation rate will continue. This is good news for the President and the unemployment rate, but probably not good news for workers. CBO attributes the trend to Baby Boomers entering their retirement years, a decline they predict to be accelerated “principally because some men in their 50s who have become unemployed or have left the labor force as a consequence of the recession are not expected to return to the labor force.” (See Figure below)
What remains unclear in this context is what impact the loss of trillions of dollars in retirement savings will have on that participation rate. It remains our perspective that we are likely to see significantly more people come into the labor force as the job market improves, and we will be monitoring that over the coming months.
Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House. Prior to joining HPS, Matt worked for McKinsey & Company. He holds an MBA from MIT’s Sloan School of Management and an undergraduate degree in economics from Dartmouth College.