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Monday, October 15, 2012 3:38 AM

Charting Errors in BLS Participation Rate Projections

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The following graph plots labor force participation rates by BLS economist Mitra Toossi in November 2006 with new projections for the participation rate as of January 2012:

click on chart for sharper image

Chart Data

Mitra Toossi in November 2006: A new look at long-term labor force projections to 2050
Mitra Toossi in January 2012: Labor force projections to 2020: a more slowly growing workforce

I asked Doug Short at Advisor Perspectives to plot the difference as a follow-up to my post About That "Expected" Drop In Participation Rate.

As you can see, the participation rate is plunging even faster than the recent January 2012 projections.

DateValue 2006 Estimate
1/1/200666.2 66.2
1/1/200766.0 66.1
1/1/200866.0 66.1
1/1/200965.4 66.0
1/1/201064.7 65.9
1/1/201164.1 65.8
1/1/201263.7 65.6

76% of Decline In Participation Rate Since 2006 Was Unexpected

The current participation rate is 63.7. In 2006, Toossi estimated the participation rate would be 65.6, a drop of .6 percentage points from 66.2. Instead, the participation rate fell by 2.5 percentage points.

Mathematically, 76% of the decline since 2006 was "unexpected" (1.9 of 2.5).

56% of Decline Since 2000 Was Unexpected

In 2000 the participation rate was 67.1. Using that favorable starting point, Toossi expected  a total drop of 1.5 percentage points. The actual drop was 3.4 percentage points.

Even by the most favorable method, only 44% of the total decline in the participation rate was expected by the BLS.

Thus, no matter how one slices or dices the data, there is no realistic way to say the decline in the participation rate was expected. Not even half of it was, by the most liberal interpretation.

Regardless, now that we have BLS projections for labor force and participation rates, there are some interesting things we can do with those projections (such as figure out how many jobs it will take to reduce the unemployment rate to 5%, hold it steady, etc.)

I hope to have an interactive graph of that idea shortly.

Mike "Mish" Shedlock

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