Why the Workforce Still Shrinks as Job Growth Rises
By Elliott Wave International
Editor's note: This article was adapted from the February issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International. All data is as of Jan. 30, 2015. (Click here for the full version of the article, including specific near-term forecasts.)
A significant hint of economic softening is the slight decline in average hourly earnings in December. It came despite "a healthy 252,000 increase in jobs. "Economists are struggling to explain the phenomenon," says the Associated Press. "I can't find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we've been adding jobs at a robust pace," says a perplexed economist.
The chart above of the U.S. Labor Force Participation Rate presents a similar conundrum. Why is it falling when job growth is rising? The answer, we think, is the emerging force of deflation.
Notice that the peak participation rate of 67.3% came from January to March 2000, as the major stock indexes topped, after which inflation first began to falter. When stocks rallied to their 2007 top, there was a mild bounce in the rate, but the latest stock market rally failed to generate any sustained rise in the rate of work force participation. Workers appear so discouraged that the pool of available employees is back to where it was in 1978.
The opening chapter of Robert Prechter's, Conquer the Crash, illustrates various other measures depicting a long-term economic deterioration. He writes, "The persistent deceleration in the U.S. economy is vitally important, because it portends a major reversal from economic expansion to economic contraction."
As "great" as it was, the Great Recession of 2008-2009 was just a prelude. Click here to continue reading the complete version of this article, a part of the newest issue of EWI's newsletter, free.
This article was syndicated by Elliott Wave International and was originally published under the headline Why the Workforce Still Shrinks as Job Growth Rises.
