Economic Pictures Still Sucks - Especially If You're Young

I am going to get a little wonky in this article. If you don't want to read the details, here is the summary: Older folks (55+) are staying in the work force more, younger people (25-) are not in the work force and the net effect is that the total percent of people working has declined. You may now skip to What You Should Be Reading below

Net effect graphically:

U.S. Civilian Labor Force Participation Rate. Source bls.gov.

An interesting article by Ben Casselman at 538 about the declining labor force participation rate reminded me that all the happy talk about the unemployment rate is pure bunk.  He applies some modeling to conclude that of the 8 million missing jobs illustrated by our graph above, some were lost due to demographic trends and things like fewer teens. Ben's somewhat charitable assessment of the Obama recovery:

Our final tally, then, is that 2 to 4 million of our original 8 million “missing workers” might return to the labor force as the economy improves. That’s a lot of people: If all of them were considered unemployed, the unemployment rate would now stand at between 7.8 percent and 9 percent, down significantly from the worst of the recession, but high enough to suggest an economy that is still far from fully healed.

However, fellow SLOB, W.C. Varones pointed out on Twitter that Ben's explanatory model was also bunk.  The situation is actually worse.

@wcvarones @NYTimeskrugman great article on missing jobs and real unemployment rate from 538. http://t.co/G2W29QNmYA
— B Daddy (@BDaddyLiberator) March 27, 2014

The link is to a great article by the indomitable Zero Hedge that looks at the data underlying the top level statistics.  I downloaded my own data from the BLS to illustrate.

Here is the civilian labor force participation rate for the geezers since 2000:

U.S. Civilian Labor Force Participation Rate for age 55+. Source bls.gov.

And here is the same data for the youngsters (16-24).

U.S. Civilian Labor Force Participation Rate (16-24). Source bls.gov.

It is pretty obvious that the drop in participation rate is far great for the younger age population.  Demographic trends of the older folks retiring is pure bunk.  These statistics bode ill for the future because we aren't getting youth employed when they should be starting their working lives.  The "real" unemployment rate?  Who knows, but just based on the 8 million lost jobs, it would be 11.8%.  Even if you don't think that is a fair analysis, that represents lost production in the economy and lost income to the population as a whole.  It's a little late in the game for Obama to be blaming Bush.  And as for you millenials who keep voting for Obama and his cronies, what is wrong with you?

Late add:  You know what would really help youth unemployment? Increasing the minimum wage to further disconnect their pay from their skill levels.


What You Should Be Reading.

• Dean updates us on the High Speed Choo-Choo debacle. Bottom line, maybe not so fast.  I love Neel Kashkari's retort to someone who claimed the voters approved this. "They voted for a train about twice as fast and half the price."
• College Insurrection, because they cover the college scene from a unique conservative perspective.
• About Bob Brewer's campaign for District Attorney, because maybe we need a DA who didn't oppose gun rights in D.C. v Heller and will work to normalize the medical marijuana situation in the city.  (This is not an endorsement of Brewer, I just have issues with Bonnie Dumanis who was also weak on Prop D as well.)

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.

More Mediocre Jobs News

The markets reacted badly to the jobs report released yesterday, but I think that there was a bit of an overreaction. Why? It was really more of the same, even though unemployment ticked up to 8.2%, and there was little job growth; I think that the mild winter is skewing the seasonally adjusted statistics, so we don't know for sure what is going on. So I turn to my favorite picture, the 10 year trend in labor force participation rate:

What we are seeing is a continuation of the same trend that's been in progress since January 2009, steady decline in the percent of people working who are over 16. The uptick may turn out to be good news, but absent other factors, I doubt it. Regardless, the country has a real issue with employment that is burdening every level of government and the economy as a whole; namely a smaller proportion of adults are working. Hopefully, the slight uptick is the start of a turn around, but only time will tell; visually the trend looks unchanged at this point.

Labor Participation Rate Hits Historic Low

Not since 1981 has the national labor participation rate been this low. Tyler Durden at ZeroHedge put up this graph:


Despite a few upticks, there has been a steady plummeting of the labor participation rate, to a 30 year low of 64.3%. The Obama administration has done nothing to reverse this trend. This is the key indicator of economic health, because this indicates the number of people working in the economy. No matter how the Administration spins it, they are failing to provide jobs for Americans. The number of people not working is at an all time record high as well. I don't think the economy will turn around until Obama is no longer the President. His administration presents too much of a risk of uncertainty to business. Have overseas profits? Don't repatriate with high marginal tax rates. Want to hire more workers? Will you get a nasty surprise that your health plan doesn't qualify or maybe there is a minimum wage hike around the corner. In a politically incorrect industry, like oil or gas exploration? Are you up for regulatory crucifixion?

The list goes on, but the uncertainty of future hostility and regulatory change are the main reasons we claim that the administration is engaging in a #WarOnJobs.

UPDATE

Even DailyKos is publishing this graph and bemoaning the jobs picture. Will wonders never cease?

March Jobs Numbers - This is not Recovery

Well, this is hardly Good Friday good news. The BLS labor force participation rate, the only economic statistic I follow from the government anymore dropped from 63.9% to 63.8% after a slight uptick last month. This means that fewer people are working as a percent of population. How did the White House spin this?

Jobs Report ‘Further Evidence’ of Recovery, White House Says

In its first reaction to this morning’s March jobs report, the White House says the latest figures are “further evidence that the economy is continuing to recover”

If it wasn't so tragic, I'd be laughing at their temerity. By the way, that is a quote from the President's Chief Economist.

Below is the real picture from which this spin emerges. Memo to Alan Kruegger: "Unlike unemployment numbers, that downward trend on labor force participation rate is not considered "good" by professional economists." Note how Obama has done nothing to reverse this trend.

Unemployment Report - Some Good News

This month's jobs news from the administration is that unemployment remained steady at 8.3%. Of course this isn't being trumpeted as good news the way last month's numbers were. However, the news is actually good for the first time in a long time. I have stopped believing the official unemployment numbers and concentrated instead on labor force participation. The participation rate is easier to calculate, harder to manipulate and is a better picture of economic health. No matter how you slice it, the people who are working have to produce the goods and services for those who are not. Even if those who aren't working are living off of their savings or government checks, the equation doesn't change. (Calivancouver might help me with the nuances of imports in this equation, but the theory is correct in the aggregate.)

US Labor Force Participation Rate Chart by YCharts

We had a slight uptick in participation rate last month, but as you can see the overall trend is quite grim. It will take many months of improvement before we can say that the economy is really healthier from a jobs perspective. What saved GDP growth in 2009 and 2010 was the increase in productivity. Even as workers lost jobs, businesses made huge leaps in productivity per worker, probably by shedding the least productive workers. (That is not an indictment of those laid off, they may have been the least productive because they were stuck in a factory that lacked modern tooling or had energy inefficient equipment.) Now, the productivity gains have tapered off, and total employment is not increasing. Hard to see how the economy can return to normal growth of 2.5% under those conditions.

Today's Jobs Numbers - Fewer People are Working

The President said that the economic recovery is speeding up, based on the reported jump in jobs created and a dropping unemployment rate. “The recovery is speeding up,” he said, and to keep it going, he argued, Congress must pass a package that would extend the payroll tax cut and continue unemployment benefits. As if those are really the causes of economic growth.

However, looking at the detailed BLS data and tax data reveals a less flattering picture. First and foremost, the labor participation rate dropped again, from 64.0% to 63.7%. I stopped trusting the official unemployment figures some time ago, but I have started to think the statistic is irrelevant. No matter how you slice it, there are fewer people working to produce goods and services to support the entire economy. Here is a ten year snapshot.




Some of the trend may come from retiring boomers, but I submit that they wouldn't be leaving the work force so quickly we had recovered more quickly from the recession. The youngest boomer is only 66, so retiring boomers can't really explain this graph.

My other reason for unease despite the cheery news is that I don't trust the seasonal adjustment, which appears to account for all of the good news. If you read the BLS press release closely, look at how they use the term. From the TrimTabs Money Blog:

The BLS each month reports two data series, but only one jobs number is reported by the media. Actual jobs outstanding, not seasonally adjusted, are down 2.9 million over the past two months. It is only after seasonal adjustments – made at the sole discretion of the Bureau of Labor Statistics economists that 2.9 million less jobs gets translated into 446,000 new seasonally adjusted jobs for January and December.

Looking at Table B-1 of today's release reveals that total employment, without adjustment, declined from 132,952,000 to 130,263,000. If seasonal adjustment is overstated because of the mild winter then the touted job creation could be very misleading.

Corporate profits are in good shape, so we might actually get a recovery going soon. But to think today's statistics are really good news is a mistake. By the way corporate tax receipts are way down, despite profits being up, because of a tax break for investment. Corporations were given the opportunity to accelerate depreciation on capital investments. Just one more loophole that forces us to keep the base rate high, but we still end up with insufficient revenue. Closing question, did corporations spend big on labor saving equipment that in turn kept unemployment high due to this loophole?

Unemployment Falls to 8.6%, Employment Falls to 64.0%

This morning's headlines, before Herman Cain* dropped out of the Presidential race, was that unemployment had declined to 8.6%. I was immediately skeptical about the numbers, because a shift that big is not normal, in my experience. Sure enough, digging into the numbers we find this factoid.

The decline in the participation rate to 64.0% from 64.2%, was driven by a drop of 315,000 in the labor force which contributed to the 594k decline in unemployment.

Clearly, the news is not as good as news as the headlines would lead us to believe. New job creation was pegged at 120,000, but it is only about the number of new entrants in the labor force. It's good that there are new private sector jobs, but I have read various sources that peg the required number of jobs needing to be created per month between 200,000 and 250,000. In my opinion, the continued fall in labor participation rate is the key story here. This means we have a shrinking percentage of people working to support the overall economic output that we all rely upon. I will admit that a portion of the fall is not due to anything the administration could have done, because there are demographic trends, i.e. aging baby-boomers, contributing to a fall in labor force participation. The very long term trends can be viewed below from Calculated Risk.


Calculated Risk also points out that "U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.6% - this remains very high. U-6 was in the 8% range in 2007."

The other bad news is that the number of long term unemployed stayed stuck. From the government's BLS.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.7 million and accounted for 43.0 percent of the unemployed.

This is a big problem for the long term, as these folks start to see themselves, and employers see them as unemployable. We have some serious problems with entitlements starting to be a huge drain on the federal budget. One way to alleviate part of the problem is for people to work longer into retirement. But the large number of long term unemployed and the declining labor force participation rate makes that outcome less likely.




*A quick note on Herman Cain. Without taking a position on whether he is guilty of anything he is accused of, I can safely say that he has displayed very poor judgement, by his own admission. Giving another woman money over the course of many years, without telling your wife, and not being prepared to discuss the issue during a Presidential campaign is too much to accept in a candidate.