Another cautionary tale for the equity market. People have to have jobs in order to buy stocks. Not enough of our employment-aged workers are in the work force. The labor force participation rate is the lowest since the Carter administration! The Bureau of Labor Statistics just provided this graph.
source data at BLS website:
http://data.bls.gov/generated_files/graphics/latest_numbers_LNS11300000_1984_2013_all_period_M03_data.gif/
http://data.bls.gov/generated_files/graphics/latest_numbers_LNS11300000_1984_2013_all_period_M03_data.gif/
2 comments:
It is true that unemployed people don't buy stocks but the stock market is a discounting mechanism. The fact that there are too many unemployed people means that there is room for new jobs and new money which can potentially flow in the stock market.
According to the graph, the previous time (1984) the labor force participation rate was so low coincided with an amazing multi-year bullish market. Also, the high point in this graph (took place in 2000) coincided with the start of a devastating period for stocks.
Note that I am not saying that the market will rise for sure. I am just saying that your argument regarding the low labor force participation rate is inadequate to support a projection for a serious trend reversal.
Giorgos Siligardos
Dear Giorgos,
Thank you for your thoughtful comments. Your points are valid.
The low participation rate is just another reason for investors to be cautious now that the market has achieved its average annual return in such a short time.
Best regards,
Deborah
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