The Labour Force Participation Rate (LFPR) as Stock Indicator

14 August 2022

The labor force is important in any economy.  An increasing labor force indicates healthy economic growth.    The scale of labor supply in a country is often measured by the labor force participation rate (LFPR). Therefore,  the higher the LFPR,  the better and healthier will be the economy and vice versa.  Investors often use LFPR to judge an economy before laying out their investment plans.

Examples 

Germany

Germany has been regarded as one country that has a better and healthier economy not only in Euro Area but also in the World.  In the past 20 years,  Germany's participation rate has risen steadily from about 70% to the present 80%.  It has managed to maintain positive GDP growth every year except for 5 occasions marked as shown in the attached chart.

Other Countries

The following chart shows the labor force participation rate as listed in the World Bank's record.

G20 Countries

Asian Countries

Where to get the Data

The Best Places

1.   Trading Economics

2.   World Bank

3.   CEIC *

4.   Macrotrends *

* likely to be using models to project/estimate when National figures are not available

Why China is not included?

For some reason,  China stopped reporting its National LFPR in 2016 as shown in this World Bank Chart. 

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One could only read from the model that predicts and projects the latest figure.  The last projected figure is 68%.

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Why has China Stopped Reporting Since 2016?

China suffered the weakest annual growth in 26 years in 2016 when it reported a GDP growth rate of 6.7% , down from 6.9 % in 2015.  There was a job loss of about 1% in that year according to this chart from Moody's Analytics. Since then,  China had not been reporting good labor force statistics.  It is not known if this is the real reason.

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The Younger Labor Force

The younger labor force participation is often regarded also as an important statistic to judge the health of an economy.   The following World Bank chart shows that China has stopped reporting such statistics since 2010.  Most economies have reported lower LFPR after the pandemic in 2020. 

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The LFPR & Stock Market

The LFPR might not be the best indicator to track the movement of the stock market but it can be used to predict if there will be a large market movement as shown in this chart.  The better indicator to track the stock market is the payroll figure at the moment

As of 14 August 2022,  the chart is showing a very healthy LFPR for the US labor market.  If not because of the pending Fed's QT  in session,  the US stock market could have recovered and taken off to make new highs.

Real Time LFPR& Stock Chart

source: tradingeconomics.com

Conclusion

Labor force participation rate (LFPR) has always been used by analysts all over the World to judge the strength of an economy.  A rising economy would have a rising LFPR.  Of late,  many economies are suffering from declining LFPR particularly in the age between 15-24,  the younger labor force.   China has purposely chosen not to report the LFPR since 2016.  However,  many analysts still use models to estimate and project this LFPR from China.

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.