Assessing the long-term structural issues plaguing the US

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In other words, the improving economy still has long-term structural issues such as slow wage growth, below-trend consumption and shrinking labor force participation.

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Market Realist – The low labor force participation rate is part of the long-term structural issues

The graph above shows the labor force participation rate for the last 12 months. It currently stands at 62.8%. This is close to its ten-year low of 62.7%, which it hit last month.

The labor force participation rate is the ratio between the actual number of people available for work or already employed and the number of people who are eligible to work between the ages of 18 and 65. People between 18 and 65 who are eligible to work but not counted as participating in the labor force are usually either students, homemakers, or retirees.

As a lot of employees lost their jobs during the recession and were unable to find new ones, they went out of the labor force. They no longer actively looked for jobs, which reduced the labor force participation rate. This is just one of the long-term structural issues currently facing the economy.

As we saw in the previous part of this series, wage growth in the US (SPY)(IVV) has been low. When inflation rates pick up, so should wage inflation. Inflation has remained low despite efforts from the Fed  through its bond (BND) buying program. The Fed bought Treasuries (TLT)(IEF) and mortgage-backed securities (MBS) of all maturities.

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