In the latest news release we saw an increase in the Civilian Noninstitutional
Population (CNP) of 208,000 (those people 16+ who are not in the military,
prison, or counted in some other institutionalized setting).
Labor Force [(LF) (those Employed -56,000 + those Unemployed -375,000 actively
seeking employment)] DROPPED by 432,000! It’s no wonder the U-3 unemployment rate fell
from 5.5% to 5.3%...everyone left the labor force!
the LF fell by 432,000 and the CNP grew by 208,000 (a respectable number), this
depressed the Labor Force Participation Rate which FELL 0.3%, moving from 62.9%
in May to 62.6% in June – a 452 MONTH
LFPR was 62.4% in October 1977…that was a different time altogether with
increasing numbers of women entering the labor force the 62.4% was actually
quite a bit higher than in previous months --- going back years.
Further on the Disastrous Monthly Employment Numbers
dropped by 56,000 in the Current Population Survey while it rose 223,000 in the
Payroll or Establishment Survey. We’ve
discussed the often diverging paths of the two surveys, but suffice to say that
the Establishment Survey represents a narrower scope than the Current
“Because the household survey has a
broader employment definition than the payroll survey, the household employment
level (green line) exceeds that of the payroll survey (blue line).”
Ratio fell by 0.1%, the result of the 56,000 fall in Employment, while the Civilian
Noninstitutional Population CNP grew by 208,000 (Employed -56,000 / CNP 208,000):
the Employment-Population Ratio needle moved from 59.4% to 59.3%.
dropped by 375,000! Now how can that be
a bad thing you ask? The key to this is
that U3 Unemployment counts those people who are not employed, but are actively
seeking employment. Stick with this for
Unemployment Rate dropped by 0.2%, going from 5.5% in May to 5.3% in June
2015. How can this be viewed as a negative
thing? The key here is to focus on the unemployed
as a measure of those not employed, but SEEKING EMPLOYMENT. Since the Employed also fell by 56,000, then
this means that those 375,000 leaving from the ranks of the unemployed didn’t
find employment at all --- on a net basis.
So where did they end up?
in the Labor Force rose by an incredible 640,000 in the month of June…wow! What does this mean? Well, on a NET BASIS, we saw the
grew by 208,000
LF dropped by 432,000 (of that -56,000 were attributable to a drop in employment
and -375,000 from a drop in unemployment).
in the CNP 208,000 = LF -432,000 + Not in LF 640,000
Change in Not in LF = Change in CNP of 208,000 less a negative 432,000 LF
in Not in LF = 640,000
So, in essence, with
the Labor Force collapsing by more than the working age population actually
grew, then this means that on a net basis 640,000 people moved to the sidelines
back from the LF (again, combined with the new additions to CNP).
What does this latest monthly (Labor) report
month we were talking about the Encouraged Worker Effect, where you have
unemployment rates on the rise (along with employment) because of the prospect
of new jobs being created on the horizon.
Keep in mind that to be classified as unemployed in the Household
Survey, you are not employed, but actively seeking employment…meaning you
haven’t completely given up.
June 2015, we have an entirely different picture being painted, with employment
down (56,000), unemployment down (375,000) and while the Civilian
Noninstitutional Population rose by a normal 208,000, there was nowhere for
those new entrants (or re-entrants) to go.
Again, looking at the Employment Picture on simply a net basis, we ended
up with 640,000 people moving completely out of the labor force.
discouraged worker comes into play when you see a drop in the unemployment due
to the fact that people give up on seeking employment. That is the 375,000 dropping out of the
unemployed in conjunction with the 56,000 exiting from the employed, for a
total of 432,000 leaving the Labor Force…let’s not forget that the ‘Not in the
Labor Force grew by 640,000 due to the dropouts from the Labor Force (432,000)
and the net effect of the additions to the Civilian Noninstitutional Population
(208,000) who were not absorbed into the Labor Force.
The Takeaway for the June 2015
good news in terms of the Fed taking their promised action on pressuring up the Fed Funds Rate (sooner rather than later)…if this
keeps up (collapsing LFPR, Employment Population Ratio, etc.), the Fed won’t act
on that threat for some time to come.
bad news: if we continue down this same path, in spite of the ballyhooing in
the media over lower unemployment rates and job growth in the payroll survey, wages
will continue to stagnate, younger workers will find it increasingly difficult
to find work (yes, we will have the LFPR by age group report out soon) and
things like the Social Security receipts will continue to fall, driving us ever
more quickly to a zero balance in the Trust Fund. Happy
4th of July 2015!