Consumer confidence signals better labor force participation: Economist

Rising consumer confidence may be a sign that more Americans will soon rejoin the workforce, Anthony Chan, chief economist at Chase, said ahead of Thursday's June jobs report.

The Conference Board's consumer confidence index for last month rose 17.4 percent from June 2014. The reading of 101.4 was the second-highest level since the economic expansion began, Chan noted.

"When that goes up on a year-over-year basis, labor force participation tends to go up," he told CNBC's "Squawk Box" "That's a noisy number. It doesn't jump month to month, but certainly over a several-month period, I continue to see that number moving higher."

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The labor force participation rate measures the number of Americans who are employed or seeking employment. While the unemployment rate has fallen relatively steadily, labor force participation has been stuck at levels last seen in the late 1970s.

Labor force participation ticked higher to 62.9 percent in May.

Chan forecasts the U.S. economy will grow by 2.5 percent this year and said he believes markets can move significantly higher despite being roughly flat through the first half of the year.

Current trends in yield curves are consistent with a 10.5 percent return in the S&P 500, he said. While that's too aggressive for this year, he said he wouldn't be surprised by a 5 to 8 percent return.

With the economy gradually improving, the Federal Reserve is set to raise rates before the close of the year, barring some negative international developments, Chan said. The combination of Greece's troubled bailout negotiations and Puerto Rico's debt crisis could cause central bankers to hold off on a rate hike until December.

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Puerto Rico managed to pay $1.9 billion in obligations due Wednesday, after its governor said his country's $73 billion in debt is "not payable."

"We know over that over the next several months they're going to have to have a restructuring of some sort. We know that that's still going to drag on," he said. "It's not as severe yet as Greece is, but you put those two things together and pretty soon these two things together could in fact force the Fed's hand."

The U.S. central bank is expected to raise benchmark interest rates, which have been near zero since December 2008, for the first time in nine years.

The Fed's game plan is to hike rates in September, but that could change "if Greece blows up the world in terms of the markets," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

Greece's direct impact on the global economy is minimal, so the fallout from any adverse development boils down to a question of financial market contagion, he said.

"I'm assuming that that's not a big deal for markets, and it comes back to the labor market in particular," O'Sullivan said. "We keep getting 200,000 in employment, and unemployment keeps coming down—in the Fed's criteria, that's No. 1 on the list."

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