Labor Force Participation Is Key To Future Unemployment Rate

From The Federal Reserve Bank Of New York, "Labor Force Exits Are Complicating Unemployment Rate Forecasts" by Richard Peach, Josiah Bethards, and Joseph Song:

What will the unemployment rate be in 2013? Even if you were certain how much the U.S. economy (gross domestic product, or GDP) would grow over the next year or two, it would still be difficult to forecast the unemployment rate over that period. The link between GDP growth and unemployment is complex in part because it depends on how many people decide to work or look for work—that is, the labor force participation rate. In this post, we discuss the recent steep decline in the labor force participation rate and explain how uncertainty regarding the future path of that variable contributes to conflicting views about the future path of the unemployment rate.

Read the complete NY Fed blog post.