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Friday, March 29, 2024

Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation

Courtesy of Mish 

Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade".

Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about). 

To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands). 

1970's Job Growth 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
1970 -64 126 151 -105 -226 -94 27 -123 17 -430 -110 381  -38
1971 76 -61 54 178 210 6 63 52 252 22 202 264  110
1972 337 207 293 218 304 293 -51 428 131 404 293 305  264
1973 350 397 269 170 190 240 25 255 115 324 304 126  230
1974 69 149 42 89 163 55 32 -15 -5 13 -368 -602  -32
1975 -360 -378 -270 -186 160 -104 249 386 78 303 144 338  30
1976 489 311 232 244 18 65 170 158 188 13 332 211  203
1977 244 295 404 339 359 399 348 238 458 262 379 235  330
1978 187 353 513 702 346 442 254 276 137 336 437 283  356
1979 137 243 426 -62 372 318 106 82 27 157 94 95  166
Decade Annual Avg 162

1980's Job Growth 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
1980 131 79 112 -145 -431 -320 -263 260 113 280 256 195  22
1981 95 67 104 74 10 196 112 -36 -87 -100 -209 -278  -4
1982 -327 -6 -129 -281 -45 -243 -343 -158 -181 -277 -124 -14  -177
1983 225 -78 173 276 277 378 418 -308 1114 271 352 356  288
1984 447 479 275 363 308 379 312 241 311 286 349 127  323
1985 266 124 346 195 274 145 189 193 204 187 209 168  208
1986 123 107 93 188 125 -93 318 113 346 187 186 204  158
1987 171 232 249 338 227 171 346 170 229 492 231 294  263
1988 94 452 276 245 227 363 223 121 340 268 339 289  270
1989 262 258 192 173 118 117 39 47 249 111 277 95  162
Decade Annual Average 151

1990's Job Growth 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
1990 342 245 215 40 149 17 -42 -208 -82 -161 -144 -60  26
1991 -119 -306 -160 -211 -128 87 -47 15 35 12 -58 23  -71
1992 49 -66 50 158 126 60 71 141 35 177 140 211  96
1993 310 242 -51 309 265 173 295 161 241 277 261 308  233
1994 268 201 462 353 331 315 363 300 354 207 423 274  321
1995 321 209 222 162 -16 231 79 271 245 147 148 131  179
1996 -19 434 263 161 323 278 232 196 220 243 296 167  233
1997 230 301 312 291 256 253 283 -18 508 339 303 299  280
1998 270 189 144 277 401 212 119 352 218 193 284 342  250
1999 121 410 106 376 213 266 291 192 202 408 294 294  264
Decade Annual Avg 180

2000's Job Losses! 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
2000 249 121 472 286 225 -46 163 3 122 -11 231 138  163
2001 -16 61 -30 -281 -44 -128 -125 -160 -244 -325 -292 -178  -147
2002 -132 -147 -24 -85 -7 45 -97 -16 -55 126 8 -156  -45
2003 83 -158 -212 -49 -6 -2 25 -42 103 203 18 124  7
2004 150 43 338 250 310 81 47 121 160 351 64 132  171
2005 136 240 142 360 169 246 369 195 63 84 334 158  208
2006 281 317 287 182 11 80 202 185 156 -8 205 180  173
2007 203 88 218 79 141 67 -49 -26 69 91 127 84  91
2008 13 -83 -72 -185 -233 -178 -231 -267 -434 -509 -802 -619  -300
2009 -820 -726 -796 -660 -386 -502 -300 -231 -236 -221 -55 -130  -422
Decade Annual Avg -10

2010's Job Growth 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
2010 -39 -35 192 277 458 -192 -49 -59 -29 171 93 152  78
2011 68 235 194 217 53 20 127 104 210 112 100* 200*  136
* : preliminary 108

Bear in mind those tables are from the BLS establishment survey data while the unemployment rate is based off a phone survey. Nonetheless, with sufficient time (and BLS revisions), the results merge.

According to Fed chairman Ben Bernanke (and I believe he is correct on this point) it currently takes about 125,000 jobs a month to hold the unemployment rate steady, down from about 150,000 in 2000. I expect that number to drop for a few more years due to boomer demographics, but the key point is the number is positive not negative. 

The only reason unemployment rate has dropped recently is because BLS surveys say the number is negative (a shrinking labor force). 

Based on historical data and Bernanke's estimates, one would have expected the unemployment rate to have risen during 2010 and peaked mid-2011. Instead, the unemployment rate fell from 10 to 8.5. 

The Real Employment Situation

With that backdrop on historical job trends, please consider an excellent article by Lance Roberts of Streettalk Live: The Real Employment Situation Report For December 2011

If you take a look at the actual number of those "counted" as employed, that number has risen from the recessionary trough. However, in reality, employment is still far below the long term historical trend. Currently, the deviation from the long term trend is the widest on record and has made very little improvement. 

In order for the country to return to the long-term trend of employment by 2020, we will need to be creating nearly 250,000 jobs each month. This, of course, is a far cry from 200,000 that we saw this month. With the employment-to-population ratio remaining at levels not seen since 1984, the real pressure on the economy remains focused on the consumer.

There are two very negative ramifications of this large and"available" labor pool. The first is that the longer an individual remains unemployed, the more the degradation in job skills weighs on future employment potential and income. The second, and most importantly, is that, with a high level of competition for existing jobs, wages remain under significant downward pressure.

Business owners are highly aware of the employment and business climate, and regardless of the ranting and raving about the "cash on the sidelines", businesses are not operated as charities. Business owners are milking the current employment climate for all it is worth in order to maintain profitability. With high competition levels for existing jobs, and the impeding threat of job loss for those working, employers can work employees longer hours at less pay. This is great for profit margins, and workers won't complain because there are plenty of individuals that will be happy to take their job and do it for less pay.

This impact on wages, as other inflationary pressures rise, hits the consumer where it hurts the most. We have discussed the fact that recent declines in wages and salaries combined with the rising costs of food and energy are consuming more of the household income. This bleed on incomes has led to significant slides in the personal savings rate and the ability for the consumer to continue to spend outside of the main necessities to meet their basic standard of living. This pattern is unsustainable, and sharp decreases in personal savings rates have historically been precursors to the onset of recessions.

Employment Trends Since 1955 

In Employment Trends Since 1955 I posted a chart from reader Tim Wallace that conveys the same idea in a different way.

Employment Trends

click on chart for sharper image

Wallace writes ….

Hello Mish 

On today's labor report: Note how the labor force has flat lined for four years even though population growth has averaged 1.5 million for the past 55 years. From 1993 to 2007 population growth was 1.7 million per year! 

Thus, the labor force should not suddenly turn flat since retirements do not even come close to explaining the chart. Yet, suddenly the work force has just been frozen in time although the population continues on the same upward trend. 

The work force is literally one million smaller than during Bush's last year in office. This is statistically impossible, at least judging from historic trends.

We also are still 5.6 million people below the employment number of the peak year in 2007. So, practically speaking we have approximately 11.6 million more people unemployed than in 2007. 

If we add the additional 6 million that should be counted as available for the labor force, the unemployment number at the U-3 level surges past 11% as you have said numerous times. 

Tim

Shrinking Job Opportunities and the Jobs Gap

Let's look at the same data still one more way.

Please consider Shrinking Job Opportunities: The Challenge of Putting Americans Back to Work

The December Jobs Gap

As of December, our nation continues to face a “jobs gap” of 12.1 million jobs, down by 67,000 jobs from November.

The chart below shows how the jobs gap has evolved since the start of the Great Recession in December 2007, and how long it will take to close under different assumptions for job growth. The solid line shows the net number of jobs lost since the Great Recession began. The broken lines track how long it will take to close the jobs gap under alternative assumptions about the rate of job creation going forward.

If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until March 2024—over 12 years—to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by February 2017—not for another five years.

Statistically Impossible IFs.

Based on the data tables from the BLS that I posted at the top of this article, each of those dashed line in the above chart represents a statistically impossible IF.

The economy is certainly not going to average 472,000 jobs per month for two years. Nor will it add 321,000 jobs a month for six straight years. Finally, the economy is not going to add 208,000 jobs a month, every month, for the next 12 years.

Indeed, one cannot find any 10-year period in which the economy added that number of jobs. The best 10-year period I can find is 195,000 jobs per month from 1991-2000, overlapping decades by 1 year (during the internet boom with hugely falling interest rates and Greenspan's foot on the gas pedal nearly every step of the way).

Fundamental Case for Structurally High Unemployment 

  • At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
  • At the height of the housing bubble in 2005, the economy added 208,000 jobs a month.
  • At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 91,000 and 173,000 jobs per month depending on where you mark the peak.

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution.

Moreover, debt levels are high and millions are trapped in their homes, unable to move. Boomers in retirement or headed for retirement have insufficient savings so one cannot expect a spending boom of any kind. Instead, one can expect boomers to draw down on their savings (assuming that have any savings).

In conclusion, the only way the unemployment rate can substantially decline from here is if millions more drop out of the labor force, thereby creating an even bigger "gap" between reality and the BLS's alleged unemployment rate.

Mike "Mish" Shedlock

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