Are We Recovering?

The new normal is revealed in two graphs.   The first graph is the employment ratio comparing number employed to the total population. It dropped in the great recession and has steadied out 58.6%. This drop has not recovered despite the "unemployment rate" dropping.  This is the lowest ratio since 1983.

Next is the labor force participation rate, the number of persons who are employed in some way or seeking employment.  It has hit its lowest mark since 1980 at 63.5%. Essentially, the economy has given back all its gains since the Reagan era. 

The steady numbers for employment ratio combined with the drop in labor force participation rate explains the falling unemployment rate.  It's not good news.  The economy may be growing, but 1.6% growth for 2012 isn't that great for what should be a recovering economy.

This is Not a Recovery

Today's jobless numbers headlines (including a drop to 7.8%) are "too good to be true" according to our friends at Zerohedge.  The key quotes from that piece; first from economist David Rosenberg.

If it's too good to be true, then it probably is. 

But this is why the headline unemployment plunged, and that is what is very likely to make the front pages of the Saturday newspapers. Digging beneath the veneer, the quality of these so-called Household jobs is called into question, seeing as part-time work for 'economic reasons' dominated with a 582k run-up in September. And upon closer inspection of the actual amount of slack in the labour market, the more inclusive U6 unemployment rate that does a much better job at capturing underemployment, remained stubbornly stuck at 14.7%.

In other words, the key reason for the drop is that part-time work is now a full time job in the new survey.  Key measures of employment health that are not as volatile as the "household survey" (and therefore less manipulable, do not show the same rosy picture.  First, the labor force participation rate; a key metric of how many people are in the work force had a slight uptick, but we have seen this before and it constitutes statistical noise in a month on month basis.  Look at the data yourself.

Another measure of employment health is the percent of the population that is working. This is important because ultimately, these are the folks driving the economy, paying taxes and investing.

These numbers also had an uptick, but again, it looks like noise to me, not a trend.  I incorporate the actual data from the Federal government's Bureau of Labor Statistics, so that you can make an informed decision yourself.  On both of these measures, we see that nothing the administration has tried to do has made a difference in actually getting a recovery going.

More succinctly, fellow SLOB sent me this picture, which sums up the current situation.

Chart of the Day - Employment Ratio Has Never Recovered

The pathetic job numbers have been much ballyhooed, so I won't go much into that, other than to say the key issue is that job creation isn't restoring employment to pre-recession levels. I have always focused on the labor force participation rate in prior articles, but the employment-population ratio caught my attention recently as another important statistic. It is defined as the percent of those over 16 years old who are working. I don't know if that includes those on disability or not. Many economists consider this the most reliable indicator of economic health.


Under Reagan and Clinton, this ratio increased to a peak of 64.6% in early 2000. The current downturn saw the ratio drop significantly; BUT IT HAS NOT RECOVERED! Sorry to shout. This is why everyone feels so miserable about the economy. Regardless of the official unemployment rate, the low percentage of people with jobs has persisted. The gap is a permanent wedge of unemployed that is setting us up for long term social problems. The President thought it more important to focus on passing a health care law that was a sop to interests groups that contributed to his party than in dealing with what is turning into a long term national disgrace. Young college graduates with few prospects became a class of dependents that harm the national economy for years to come. I know this isn't sexy, but the President's policies are responsible for the failure of the economy to recover. We can not afford his re-election.

This is All You Need to Know About Federalism

P.J. O'Rourke famously said, "You can't get good chinese takeout in China and cuban cigars are rationed in Cuba. That's all you need to know about communism." In these United States we can see the effect of stupid policies unveiled in one state, but not others and take note. (I wasn't thinking of Romneycare, but that's not a bad example either.) This is the beauty of federalism.

In January 2011, a massive tax hike was enacted in Illinois by the Democratic controlled legislature and here are the results.



Meanwhile, I found this picture on the BLS website regarding employment in Houston, TX:


Note how Houston continues to add jobs, better than the whole of America which is also adding jobs even at a lower rate, unlike Illinois.