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Tepid Housing: Blame the Weak Labor Market

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Despite the fact that the unemployment rate was unchanged at 6.3 percent in May, with 9.8 million Americans unemployed, the lowest it has been since September 2008, a  record high 92 million Americans remain out of the labor force, according to  the Bureau of Labor Statistics. U.S. businesses added 217,000 jobs in May, adding at least 210,000 jobs since February.

These numbers, while significant, don’t tell the full story. The falling unemployment rate is driven by not just by more people working, but also by more people giving up on the search.

A whopping 920,090 people dropped out of the labor force in May, according to the data. What’s alarming about these numbers is that each month, nearly 1 million Americans had given up on even looking for a job, wiping out January and February gains and a bit of March’s job growth too. The reason unemployment is slowly dropping is due to the number of Americans exiting the labor force. It pays just as well to sit home and collect disability and various welfare and entitlement checks rather than work. The labor force participation numbers prove this point.

On the surface 6.3 percent unemployment looks good, but paired with a declining  labor force that relatively low unemployment rate points to job seekers giving up looking rather than finding new employment. In other words, a shrinking labor force explains the drop in unemployment.

When President Obama took office in January 2009, the labor force participation rate — the share of the population that is working or looking for work — was 66 percent. In May 2014, that number hit a record low 62.8 percent — the lowest since 1978.

From January 2009 to May 2014, more than 11.5  million people have dropped out of the labor force — with the number not in the labor force growing from 80,507,000 in January 2009 to May’s 92,009,000. The U.S. now has 92 million men and women over the age 16 not working — an all-time  high. They are neither working nor seeking work. People are not counted as unemployed if they’re not looking for a job. This is an employment crisis we have not seen in 30 years. With total employment at 145.8 million, for every three Americans over the age 16 earning a paycheck there are two who aren’t even looking for a job.

A dwindling labor force is not good for housing. With the pool of employed home buyers shrinking there are fewer home buyers with jobs. For housing to pick up steam the labor force participation rate needs to increase. And adding 200,000 jobs a month while 1 million workers leave the job market is not a formula for healthy housing market.

“At this pace, people out of the labor force will surpass the working Americans in about four years,” writes the economic blog ZeroHedge.


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