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Aug 1, 2016 Here Comes the Debt
June 26, 2016 Moribund US Economy
June 16 2016 Labor Update
Mar 10, 2016 Spring Renewal for Labor Markets?
Feb 21, 2016 GDP Gap
Feb 16, 2016 FED and Monetary Policy
Jan 19, 2016 Employment Gap Age Groups LFPR
Jan 10, 2016 A look at the Employment Situation
Dec 30, 2015 Fed Funds Rate up 25 Basis points...so what?
Dec 15, 2015 Fed Funds on the rise? Has Yellen 'Fell-in'?
Oct 15, 2015 Labor Markets Seven years of misery
Oct 6, 2015 Sept: Horrible Month for Labor
Sept 30, 2015 The FED: Interest Rate Angst
Sept 11, 2015 FED on the Monetary Policy Front
July 31, 2015 Trade and Foreign Exchange Rates
July 20, 2015 Economic Growth?
July 10, 2015 Labor Picture by Age Group
July 2, 2015 Disastrous Month in Labor Rpt
June 19, 2015 Minimum Wage - Income Distribution
Jun 5, 2015 Encouraged Worker Effect
May 8, 2015 Updated Employment Situation for April
May 4, 2015 Languishing Labor Markets
Apr 7, 2015 LFPR Doldrums on the Labor Front
March 8, 2015 Less than Zero Interest Rates - Trade War
Nov 29, 2014 Good News October Jobs Report
Nov 6, 2014 LFPR by Age and Gender
Oct 18, 2014 Competition-Consumer Sovereignty
Oct 12, 2014 Labor Rpt
July 13, 2014 Jellin with Yellin
June 20, 2014 Labor Mkts by Age Groups
June 3, 2014 Mar and Apr Jobs Rpt
May 21, 2014 April Jobs Report
April 18, 2014 Economic Welfare
Mar 24, 2014 CBO Estimates and LFPR
Jan 12 2014 Deteriorating Labor Market
Jan 2, 2014 Is this the beginning of the end for QE?  (Quantitative Easing 1 through 3+)
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2014 Volume Issue 3


Economic Newsletter for the New Millennium

March 24, 2014


Editor
Donald R. Byrne, Ph.D.
dbyrne5628@aol.com  


Associate Editor
Edward T. Derbin, MA, MBA
edtitan@aol.com  


For a downloadable version, click here


2014VolumeIssue3CBOEmploymentSituation3-24-2014.pdf







...a bit more compressed version of same



2014VolumeIssue3CBOEmploymentSituation3-24-2014 compressed.pdf



 
Labor Force Participation Rate: Where We are; Where We’ve been; and Where We’re Heading



 
February 2014 Employment Situation

http://www.bls.gov/news.release/archives/empsit_03072014.pdf   

In the most recent monthly data published by US Department of Labor, Bureau of Labor Statistics, Payroll Employment (Establishment Survey) rose by 175,000 and 42,000 in the Household Survey.  We’ve discussed the differences between the two: the Establishment and the Household Survey, on numerous occasions.  The Current Employment Statistics Survey (CES; establishment) gathers its data from firms and government entities, while the Current Population Survey (CPS; household) polls households directly.


Employment Situation Technical Note

http://www.bls.gov/news.release/empsit.tn.htm  

Please read the preceding linked material to learn more details about the two surveys.

Employment from the BLS household and payroll surveys: summary of recent trends (March 7, 2014)

http://www.bls.gov/web/empsit/ces_cps_trends.pdf  

The linked material goes through a more detailed discussion on the two surveys…

 
While the Establishment Survey is significantly larger in terms of identifying participants at the individual level: 144,000 businesses and government agencies, with 554,000 individual worksites. The firms and government entities report on monthly changes in their respective workforces and provide such things as hours worked, earnings, hires, fires, etc.  The Household Survey, conducted by the Census Bureau, contacts 60,000 households directly, querying them on the employment status of individuals in the household.  The Unemployment data and Labor Force Statistics are derived from the Household Survey and while the sample size is significantly smaller, this survey captures a wider swath of the population and presents a more complete picture for detailing such things as Labor Force Participation. 

The Monthly Employment Situation is typically released on the first Friday of the month and shows detailed data gathered from the previous month(s).

The first table that is typically presented in the monthly report is the Household Data, Summary Table A. (page 4 or thereabouts). 

The first category is the Civilian Noninstitutional Population, which measures the 16+ year old who are not institutionalized (prisons, military, etc.).  This number (estimate from Census) has averaged around 200,000 growth per month over the last ten years.  The 170,000 rate for February 2014 is a bit low, but periodic adjustments (changes population controls) are made on a regular basis. 

The second metric is the Civilian Labor Force.  Included in the Labor Force are those counted as Employed and those counted as Unemployed (those actively seeking employment).  The remaining portion of the Civilian Noninstitutional Population are those ‘not in the Labor Force’ and include those that are retired, given up on finding employment, those on disability, etc.   The Labor Force registered a 264,000 gain for the month of February. The 264,000 included an increase in Employed of 42,000 and an increase in Unemployed of 223,000 (combining the two is how we arrive at the Labor Force…note that there was 1,000 difference due to rounding).  This increase in the Unemployed is what drove up the U-3 Unemployment Rate from 6.6% in January to 6.7% in February.  When we see the unemployed number increase due to the more people seeking employment, we refer to this as the encouraged worker effect – in that people are anticipating more hiring in the near term (We’ve heard some people call it the ‘desperate worker effect’).

In looking at the combined effect of the Labor Force as a percent of the Civilian Noninstitutional Population this is the Labor Force Participation Rate (LFPR).  We’ve been looking at the LFPR since May 2010 http://blogs.udmercy.edu/newparadigm/tag/debt-to-gdp/, and unfortunately, it has only worsened since that time.  The current rate of 63.0% is as low as it has been since 1978 when the labor markets were in bad shape as well; but also keeping in mind they were a bit different, with fewer earners in individual households.  If, for example, the Labor Force would continue to add the same monthly number that was added in February, 264,000, for the next four years (48 months), the Labor Force Participation Rate would be in the previously normal – pre Recession level, of 66.0% (66.1% average from 2004 – the end of 2007). 

One of the dismissive reasons we’ve repeatedly heard explaining the fall in the Labor Force Participation Rate has to do with growing number of baby-boomers (born 1946 – 1964) charging toward that 65+ age group.  The assertion is that the falling Labor Force Participation is owed primarily to the increased retirements.  The problem with that reasoning is that the older population cohorts are actually staying in the Labor Force in record numbers – as we pointed out in previous newsletters. The real problem is that we have younger, able-bodied workers, who are simply not able to find employment.  I bit later in this article, we will take a look at the breakdown between men and women in terms of what we call the ‘marginal’ Labor Force Participation Rate, where we look at the change in that measurement over a given period of time.     


At the southeast corner of Haggerty Road and Eight Mile Road in Livonia, Michigan, there is a standard ‘No Turn on Red’ sign and on that sign is a bumper sticker: “30% of US 20 to 24 year olds are neither employed nor in school.”






1-Sign at Southeast Corner of Haggerty and Eight Mile Road Livonia 30 percent of 20-24 year olds are neither working nor going to school.jpg
 



 


The next item, Employed, came in at 42,000 for the month of February.  Given the 264,000 per month increase in the Labor Force we used previously (to arrive at the 66% LFPR in 48 months), the Employed number will have to increase at a much, much greater rate than is currently the case.  Again, keeping in mind that the Labor Force is equal to the Employed plus the U-3 Unemployed, we have to take into consideration the amount we would like to see the Unemployment Rate at the end of that 4-year window.  For the sake of this exercise, we’ll use a 5% targeted U-3 Unemployment Rate.  Over the next 48 months, in order to hit the twin targets of 66% LFPR and 5.0% U-3 Unemployment Rate, the increase in Employed would have to be 306,000 per month.  Conversely, the Unemployed would also have to drop by 42,000 per month (a 264,000 monthly rise in the Labor Force; in conjunction with a 302,000 monthly increase in Employed, less 42,000 per month drop in the Unemployed).   

As we’ve noted on numerous occasions, the Employment-Population Ratio (Employed divided by Civilian Noninstitutional Population) is closely monitored by the Federal Reserve in measuring the health of the labor markets and serves as a bell weather in determining the direction of monetary policy, i.e., a major factor in when the FED will pursue more restrictive monetary policies (reducing/eliminating its currently aggressive bond-buying strategy and maintenance of a virtual 0.0% - 0.25% Federal Funds Target Rate).  The current Employment-Population Ratio of 58.8%, would move up to pre-recession level of 62.7% given the previously noted scenario regarding the average Employment growth of 306,000 per month for the next 48 months (a 14.7 million gain in employment).   

The Unemployed numbered 10.459 million in February 2014, while the U-3 Unemployment Rate increased to 6.7% due to the aforementioned ‘encouraged worker effect’.  Given the 48 month scenario previously noted, where the Unemployment Rate falls to 5.0%, the Unemployed number would have also to drop by 42,000 per month for a total reduction of 2.039 million. 

The last item is the ‘Not in the Labor Force’ category.  Again, the Civilian Noninstitutional Population is comprised of the Labor Force (Employed + Unemployed seeking employment) and the ‘Not in the Labor Force’ components. Going forward, the ‘Not in the Labor Force’ category will have to drop by 94,000 per month for the next 48 months, going from its current 91.4 million level down to 86.9 million. 

We’ve gone through this exercise, focusing on targeted levels for the Labor Force Participation Rate and the U3 Unemployment Rate.  At the end of the day, it really comes down to whether or not the labor markets are trending in the right direction.  For all of the hopefulness and waiting over the past several years, we are still not moving in the right direction.  The February 2014 Employment Report was not ‘terrible’, but we have to begin seeing more rapid and sustained growth in Employment before we can even say we are in a decent recovery. 

 

 



2-Employment Status February 2014 Household Survey.jpg
   

 

 
The War on American Labor Force: both men and women


In this section we will take a look at how women and men have fared in terms of Labor Force Participation Rate over the past several years.  In particular, we will look at the ‘marginal’ Labor Force Participation Rate focusing on the change from January 2008 through February 2014. Perhaps the most noteworthy observation here is that while the ‘marginal’ Labor Force Participation Rate for women was only 22% (the average Labor Force Participation Rate for the last ten years, March 2004 – February 2014, was 58.7%), the rate for the men was a NEGATIVE 0.3% (the average Labor Force Participation Rate for the last ten years, March 2004 – February 2014, was 71.9%).

 



 



3-Wpmen Marginal Labor Force Participation Rate of 22 percent from Jan 2008-February 2014.jpg
 

 






4-Men Marginal Labor Force Participation Rate of NEGATIVE 0.3 percent from Jan 2008-February 2014.jpg





The Congressional Budget Office’s Economic Forecast: what it means for the Labor Markets



Baseline Economic Forecast—February 2014 Baseline Projections

February 4, 2014

http://www.cbo.gov/publication/45066  

 
When the Congressional Budget Office performs its analysis, they are provided with guidelines, defining the scope and parameters of what is being measured.  In general, the CBO has a good reputation for providing accurate analysis – but again, they operate with specific instructions.   

What is both interesting and alarming about this forecast is that the Labor Force Participation Rate is scheduled to continue to deteriorate over the next eleven years.  What this means is that Employment growth, in particular will not rise enough to offset those leaving the Labor Force.  The final take away from this analysis is that there is no expectation for the U.S. Labor markets to rebound in any meaningful way.  Yes, the U-3 Unemployment Rate is expected to fall, but rather than elevating the Employed levels, on a net basis, most seem to be seen moving out of the Labor Force entirely.  Likewise, while the Civilian Noninstitutional Population is on track to expand, on a net basis, over half of those adds will not land in the Labor Force.  Keep in mind that we’re looking at the net changes in the various categories over the eleven year time frame, from 2014 through 2024.  


 

 


5-CBO Projecting continuted drop in Labor Force Participation Rate stagnant Labor Markets for eleven more years.jpg

 

 
Simply put, the Labor Force Participation Rate reflects those in the Labor Force (Employed and Unemployed) as a percent of Civilian Noninstitutional Population.  The expectation is for Unemployment rate to drop to 5.5%, but the net effect will not translate into a gain for the Labor Force.  In order for the Labor Force to move the Labor Force Participation needle higher, the Employed (on a net basis) would have to take on those moving out of the ranks of the Unemployed and grow at a sufficient level to also absorb those new adds to the Civilian Noninstitutional Population.  

In short, the Employed would have to take from the Unemployed, the new adds to the Civilian Noninstitutional Population and those ‘Not in the Labor Force’ to really raise the Labor Force Participation Rate.  According to the CBO’s estimates, this is simply not going to happen.  The monthly Employment numbers are expected to grow at less than 100,000 per month, which is far short of the roughly 200,000 per month required to move the Labor Force Participation Rate to the 66% level with a concurrent 5% Unemployment Rate. 

 

   


6-CBO estimates that Employment levels will surpass 2007 level in 2015 - meanwhile Civilian Noninstitutional Population conitinues to rise.jpg


 


While Employment is expected to rise by 12 million from 2014 through 2024, it would require an additional 14 million to reach the 66% Labor Force Participation Rate level.  Unfortunately, the projected 12 million will result in an even lower Labor Force Participation Rate number of 60.9%.  

We’ll continue to monitor the Labor Force Participation Rate (LFPR) going forward, but given where we’ve been and are currently, unless there are dramatic pro-growth policy shifts going forward, the CBOs take on the labor markets are likely to be fairly accurate…unfortunately so.   


 



7-According CBO estimates the Labor Force and Employment growth is far outsripped by the expanding not in the Labor Force component of the CNP.jpg






8-Marginal changes in Labor Force Participation Rate and Employment-Population Ratios forecast continued deterioration CBO Estimates.jpg






9-According to the CBO 2014-2024 estimates adds to the not in the Labor Force portion will greatly outnumber those going into the Labor Force of the CNP.jpg