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Apr 26, 2017 What's up with the FED?
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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
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2017 Volume Issue 3


Economic Newsletter for the New Millennium 
May 25, 2017

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

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


Again, going forward we're trying something a bit new. 

Left click on the link below to view a video presentation of this latest newsletter article.


May_2017_Labor_Force_Participation_Rate-b.mp4



Please let us know your thoughts. 

We're planning on continuing with these video clips going forward.


For a downloadable version, click here


May 2017 LFPR-LF.pdf
 

...a bit more compressed version of same


May 2017 LFPR.pdf



ARE THE LABOR MARKETS REALLY IN THAT GOOD OF SHAPE? NOT REALLY


Federal Reserve Philadelphia Bank President Patrick Harker: “We’re looking at a labor market more or less at full health, with very little slack.”

Fed’s Harker: “Very Little Slack” Left in Labor Market   May 12, 2017

https://www.philadelphiafed.org/newsroom/press-releases/2017/051217


In looking at the 4.4 U3 Unemployment rate for April 2017, this would appear to reinforce the claim that the labor markets are humming along just fine and would justify the Federal Reserve’s position on driving up interest rates over the course of the next several months due to inflationary pressures on wages.  In fact, the average U3 Unemployment rate was 5.0% from 2000 through 2007.  So why is it that we are questioning the health of the labor markets?  









1- U3 Unemployment - fallen from 10 percent in Oct 2009 but the problem is in that many of those affected left the Labor Force altogether.jpg




Enter (yet again) the Labor Force Participation Rate (LFPR)

The Labor Force Participation Rate is calculated by combining those employed with those unemployed actively seeking employment and dividing that total by the Civilian Noninstitutional Population.  As we’ve noted on several occasions, the LFPR has fallen precipitously since 2008 and has not gained much traction.

The Current Population Survey is conducted by the U.S. Census Bureau for the Bureau of Labor Statistics.  On a monthly basis, 60,000 households are surveyed and provide detailed information regarding individuals in that household sector:

1) Civilian Noninstitutional Population (CNP) – 16+ years of age not in institutions (military, prison, etc.)


2) Civilian Labor Force – those individuals from the CNP who are either employed or not employed but actively seeking employment (unemployed)

3) Not in the Civilian Labor Force – those individuals in the CNP who are not part of the Labor Force [neither employed, nor actively seeking employment].

The survey itself is quite extensive, but we will focus on specific labor market issues including the Labor Force Participation Rate and the Employment-Population Ratio (Employed divided by the Civilian Noninstitutional Population)

Current Population Survey Questionnaire – Labor Force

 (https://www2.census.gov/programs-surveys/cps/techdocs/questionnaires/Labor%20Force.pdf)









2-From 2008 -2015 the ANNUAL Labor Force Participation Rate was 18.2 percent - this reflects millions leaving labor force.jpg




It’s clear from the preceding chart showing the annual changes in the Labor Force Participation Rate (LFPR) that massive numbers of people left the labor force between 2008 and 2015.  During that time, the LFPR averaged 18.2% on an annual basis.  

Here are a few questions that come to mind. 

Is the collapse in the Labor Force Participation Rate permanent? 

Can the LFPR return to pre-recession levels?  How could this occur?

Is it even feasible to see a return anywhere near the pre-recession level given the growing size of 65+ age group  









3-Labor Force Participation Rate is at a 40 year low - while some can be attributed to baby boomers retiring - but the younger age groups have not recovered.jpg





Back to the story: If the employment picture is so rosy, where have the 16 – 54 year olds gone in the Labor Force?

It’s a plain fact that the Baby-boomers (those born between 1946 and 1964) will continue to swell the ranks of 65 and over set.  Conventional wisdom dictates that the labor force would naturally decline, based on increased numbers of people no longer being employed or even seeking employment (unemployed).  While that age group is for the most part leaving the labor force in increasing numbers, the ratio of those staying is surprisingly large and growing.  We will go into greater detail a bit later, but our primary focus will be on the younger age groups or cohorts as they are referred to by the Bureau of Labor Statistics and the Census Bureau.

  Since the Baby-Boomers are moving into their retirements and leaving job openings, it would make sense that the younger age groups would be backfilling those vacancies and their Labor Force Participation Rates would be moving in the direction of the pre-recession levels (2000-2007 average)  

The following table shows the continued shortfall in the Labor Force for the prime earning years ages 16 - 54:









4-Labor Force Participation Rate is at a 40 year low - while some can be attributed to baby boomers retiring - what happened to the younger age groups.jpg



It would make sense that 1) the increased numbers of the Baby-Boomers leaving the labor force would open up jobs for the younger age groups; and 2) the Federal Reserve actions in driving up interest rates in response ‘tight’ labor markets, would point to at least a return to pre-recession levels, if not even more robust labor force participation rates for the age groups 16 through 54. 

The fact is that, based on pre-recession Labor Force Participation Rates for the 16 to 54 year olds, we are clearly 5.0 million or more short of where the Labor Force should be at this point if in fact we had returned to pre-recession levels.

Drilling down on the Labor Force Participation Rate and Employment Population Ratio by Age Group 

The Labor Force Participation Rate is measured by taking the Employed plus those Unemployed (U3) who are actively seeking employment and dividing that total by the Civilian Noninstitutional Population.  The Employment-Population Ratio simply takes the Employed and divides it by the Civilian Noninstitutional Population.  In the following graphs we will present material from the Current Population Survey as published by the U.S. Bureau of Labor Statistics in conjunction with the U.S. Census Bureau.

In each age group from 16 through 54, you will notice drop-off in the Labor Force Participation Rate without any significant bounce-back.  In terms of the Employment Population Ratio, you will notice movement back toward pre-recession levels. 


Labor Force Participation Rate: 16 to 24 years old







5-LFPR for 16-24 year olds is nearly 7 percent below the pre-recession 2000-207 average resulting in 2.7 million moved to the sidelines on a net basis.jpg





Employment-Population Ratio 16-24








6-Employment-Population Ratio for 16 - 24 year olds is 5.9 percent below the pre-recession 2000-207 average resulting in 2.3 million decrease in the employed based on previous ratio.jpg




Labor Force Participation Rate: 25 to 34 years old









7-LFPR for 25-34 year olds is nearly 2 percent below the pre-recession 2000-207 average resulting in 795,000 moved to the sidelines on a net basis.jpg




Employment-Population Ratio: 25-34 years old  









8-Employment-Population Ratio for 25 - 34 year olds is 1.8 percent below the pre-recession 2000-207 average resulting in 766,000 decrease in the employed based on previous ratio.jpg




Labor Force Participation Rate: 35 to 44 years old    









9-LFPR for 35-44 year olds is nearly 2 percent below the pre-recession 2000-207 average resulting in 651,000 moved to the sidelines on a net basis.jpg




Employment-Population Ratio: 35-44 years old  








10-Employment-Population Ratio for 35 - 44 year olds is 1.5 percent below the pre-recession 2000-207 average resulting in 594,000 decrease in the employed based on previous ratio.jpg


Labor Force Participation Rate: 45 to 54 years old 









11-LFPR for 45-54 year olds is 2 percent below the pre-recession 2000-207 average resulting in 883,000 moved to the sidelines on a net basis.jpg




Employment Population Ratio: 45 to 54 years old 









12-Employment-Population Ratio for 45 - 54 year olds is 2 percent below the pre-recession 2000-207 average resulting in 888,000 decrease in the employed based on previous ratio.jpg




Moving to the age groups 55 and over…rising Labor Force Participation Rates and Employment-Population Ratios

 Why are the older age cohorts, 55+ year olds, remaining in the labor force at higher levels than was previously the case?

1) Inability to retire since they have not been able to save enough

2) Remaining productive for longer due to employment not requiring as much strenuous labor

3) Less expensive to employ based on reduced health care costs (Medicare) and reduced income requirements – willing to work for less

Probably all of the above and then some…



Labor Force Participation Rate: 55 to 64 years old    









13-LFPR for 55-64 year olds is 2 percent ABOVE the pre-recession 2000-2007 average resulting in 820,000 increase in the Labor Force.jpg



Employment-Population Ratio: 55-64 years old  









14-Employment-Population Ratio for 55 - 64 year olds is 2 percent ABOVE the pre-recession 2000-207 average resulting in 736,000 increase in the employed based on previous ratio.jpg




Labor Force Participation Rate: 65+ years old    









15-LFPR for 65+ year olds is a whopping 5 percent ABOVE the pre-recession 2000-207 average resulting in 2.4 million increase in the Labor Force based on previous LFPR.jpg




Employment-Population Ratio: 65+ years old  









16-Employment-Population Ratio for 65+ year olds is nearly 5 percent ABOVE the pre-recession 2000-207 average resulting in 2.3 million increase in the employed based on previous ratio.jpg




Can we reasonably expect to see improvements in the Labor Force Participation Rate  and the Employment-Population Ratio?

It’s clear that the Federal Reserve is intent on driving up interest rates, pointing to the reduction in the U3 unemployment rate.  What should be clear at this point is that both the Labor Force Participation Rate and the Employment-Population Ratio levels are still well below Pre-Recession levels.  Many experts attribute the decline to the increasing number of people moving into their retirement years, but fact is that the 55+ age groups are actually remaining in the workforce at increasing levels, while the 16 through 54 year olds are still well below their Pre-Recession levels in terms of the LFPR and the Employment-Population Ratio.

So long as we see improvement in terms of economic growth (higher real GDP…much higher than 1st quarter 2017 0.7%) there is little doubt that more people will be drawn back into the labor force.  Keep in mind that the prospect of new jobs will often cause the U3 Unemployment Rate to actually rise.  This is referred to as the ‘encouraged worker effect’ and happens when those people on the sidelines, not in the labor force, are encouraged to once again seek employment.  We’ve actually seen this going on of late, but it has to continue on a regular basis. 
 









17-LFPR from 1977 through 2016 averaged 65.3 percent.jpg











18-the Employment Population Ratio from 1977 through 2016 averaged 61.1 percent.jpg


In an upcoming newsletter we will revisit the performance of the economy over the last several years, including economic growth, price level changes and we will once again summarize the employment picture.  Our objective is to provide a baseline of sorts by which to measure future economic performance. 

We will have several more topics going forward and as always, we welcome your feedback.