Sunday, October 11, 2015

Goldman: Expects Participation Rate to decline 0.25% per year, Unemployment Rate to below 4.5%

by Bill McBride on 10/11/2015 11:36:00 AM

A few excerpts from a research piece by Goldman Sachs economist David Mericle: What We Have Here Is a Failure to Participate

[W] now expect the participation rate to fall by about 0.2-0.25pp per year. The main reasons for the forecast change are that we have flattened the slope of the upward trend in participation rates for older workers and will see a smaller boost from declines in the now-lower stock of discouraged workers in the future. This implies that a given amount of GDP growth will put more downward pressure on the unemployment rate than we previously estimated, and we now expect the rate to fall below 4½% in coming years even as growth slows toward a trend rate. Exhibit 10 shows our new forecast paths.
Click on graph for larger image.

This graph from Goldman Sachs shows their projection for the labor force participation rate on the left. Goldman expects the participation rate to decline from the current 62.4% to around 61.8% in 2018.  Most of the expected decline over the next few years will be from retirement.

Note: Economist at the BLS expect the participation rate to continue to decline for the next couple of decades due to demographics.

The right side of the graph shows Goldman's forecast for the unemployment rate (previous forecast and revision).

Goldman expects the unemployment rate to decline to around 4.6% at the end of 2016, and to see further decline in 2017 and 2018.