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Five Predictions For 2014: #2

Prediction #2: Employment will remain sluggish, but a little less sluggish.

In the spirit of 1.4 million Americans losing extended unemployment benefits recently, I will speak to employment. First, the 1.4 million losing their unemployment benefits will make the commonly quoted unemployment rate drop a whole bunch -- my guess from 7.0% to 6.5 percent. It is crazy, but when folks lose unemployment benefits, they exit the unemployment statistic. Don't get excited when the pundits note the significant drop in unemployment; it is just damn statistics at work in Washington.

Here is the beef. The labor force participation rate has dropped about 3 percentage points since the Great Recession (66% to 63%) -- that equates to about 7 million jobs. If we were to hold the labor force participation rate equal to pre-recession rates, the unemployment rate today is 11.5%, which is what it was in the midst of the recession in 2009. The lack of improvement in employment feels consistent with my analysis. It ain't that good out there in terms of jobs and employment, especially for the young folks.

That being said, there are about 1.5 million more job want-ads (4.5 million now vs. 3.0 million in 2009). And, anecdotally, I am seeing more opportunities and demand for labor. Thus, I think labor force participation will bottom out at 63% and maybe inch a wee bit higher in 2014.

The sluggish economy, talk of higher minimum wages, and corporate jitters from continued regulatory uncertainty will keep robust employment growth a distant reality.