by Calculated Risk on 1/11/2023 09:21:00 AM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

4) Participation Rate: In December 2022, the overall participation rate was at 62.3%, up year-over-year from 62.0% in December 2021, but still below the pre-pandemic level of 63.4%.   Long term, the BLS is projecting the overall participation rate will decline to 60.1% by 2031 due to demographics.  What will the participation rate be in December 2023?

The overall labor force participation rate is the percentage of the working age population (16 + years old) in the labor force.   A large portion of the decline in the participation rate since 2000 was due to demographics and long-term trends.

The Labor Force Participation Rate in December 2022 was at 62.3% (red), down from the pre-pandemic level of 63.4% in February 2020, and up from the pandemic low of 60.1% in April 2020. (Blue is the employment population ratio).

In April 2020, 8.15 million people had left the labor force due to the pandemic.   By December 2022, the labor force was about 0.5 million higher than the pre-pandemic high.  

We know population growth has been weak over the last several years, and that the baby boom generation is now retiring in large numbers.  And there are ongoing impacts of the pandemic on the labor force (over 1.1 million US deaths, some people unable to work due to long COVID, and immune compromised or elderly people avoiding other people and not working).

The second graph shows the participation rate for "prime age" workers (25 to 54 years old). The 25 to 54 participation rate was at 82.4% in December 2022 (Red), down from the pre-pandemic level of 83.0%.  This suggests we might see some further increase in the prime participation rate, however most of the prime age workers have returned to the labor force.

There are probably a few more people that will return to the workforce in 2023, pushing up the participation rate.  However, demographics will be pushing the rate down.  So, my guess is the participation rate will be mostly unchanged year-over-year, around 62.3%.

Here are the Ten Economic Questions for 2023 and a few predictions:

• Question #1 for 2023: How much will the economy grow in 2023? Will there be a recession in 2023?
• Question #2 for 2023: How much will job growth slow in 2023? Or will the economy lose jobs?
• Question #3 for 2023: What will the unemployment rate be in December 2023?
• Question #4 for 2023: What will the participation rate be in December 2023?
• Question #5 for 2023: What will the YoY core inflation rate be in December 2023?
• Question #6 for 2023: What will the Fed Funds rate be in December 2023?
• Question #7 for 2023: How much will wages increase in 2023?
• Question #8 for 2023: How much will Residential investment change in 2023? How about housing starts and new home sales in 2023?
• Question #9 for 2023: What will happen with house prices in 2023?
• Question #10 for 2023: Will inventory increase further in 2023?