Friday, October 9, 2015
- by New Deal democrat
I have a new post up at XE.com. The shallow industrial recession is real, and is not abating yet.
- by New Deal democrat
As I wrote several months ago, the Labor Market Conditions Index is a good leading indicator for YoY growth in employment. Based on its deceleration, I forecast that monthly jobs growth was likely to decline to less than 200,000 in the months ahead.
Here's the graph I ran at that time:
The LMCI was updated earlier this week, and the news isn't good, with the Index coming in at zero. So here is an updated look at the same relationship, zoomed in on the last 10 years:
The LMCI is forecasting further YoY deterioration in jobs growth. Even a few 5-digit increases cannot be ruled out. The silver lining is, it is not forecasting an outright YoY decline in jobs. Similar periods of weakness occurred in 1984, 1994, and 2002 without there being a recession. Even in those periods leading up to recession, generally speaking the LMCI crossed zero into negative territory well before the recession began.
Bottom line: not good news, but this expansion isn't Doomed yet.
Thursday, October 8, 2015
-by New Deal democrat
I've long thought that the typical mode of presentation of the jobs recovery -- i.e., number of jobs created -- is unsatisfactory, because it fails to take into account demographics.
Suppose, for example, you get 200,000 jobs created per month on average over a year. Whether that is good or bad depends on whether the population in which those jobs are being created is growing by 100,000 or 300,000. In the former case, 100,000 more members of the labor force have jobs; in the latter, 100,000 moe members of the labor force are unemployed!
Just adjusting for population isn't enough, since due to increased healthy longevity and demographics, the percentage of the population that is retired is growing strongly, and ought not to be counted.
So what we want to do is count the number of jobs as a percentage of the labor force, or alternatively by those of working age (below, I am using ages 16-64). What does this jobs recovery look like under those conditions? Below are 3 variations on that theme. As we'll see, measured that way the jobs recovery still isn't great, but it is solidly in the middle of the pack.
First, let's look at the "employment rate" which is simply 100 minus the unemployment rate:
As an initial observation, the post-WW2 era of US economic dominance that ended in 1974 stands out. Employment rates of 94%+ were the norm, and half of the time exceeded 95%. Since then, our current level of 94.9% has only been exceeded during the tech boom of the late 1990s and briefly at the end of the housing boom 10 years ago.
But how strong has the current recovery been? For that, let's see how the employment rate, as graphed above, changed on a YoY basis:
While the current recovery got off to a slow start, it has measured better YoY growth than since the early 1980s. In general, the post-WW2 job recoveries grew much faster YoY than those since 1983. As we'll see below, however, that is tempered by the fact that many of them, especially in the 1950s, were short-lived.
Second, let's look at the YoY% change in employment growth compared against the working age population, age 16 through 64:
Here the current expansion does look very weak. But not quite so bad as it might first appear. Here's the percentage of jobs added in this recovery, now 5 1/2 years old, as a share of population ages 16-64:
This growth of 5.7% is still better than the 1971-74 expansion, which added less than 5%, and 5 /12 years later was only up 1.6%:
It is also light years better than the George W. Bush expansion, which not only added a miserable 1.7% jobs at its best, but 5 1/2 years later was negative!
Finally, perhaps the best measure of all is the change in jobs vs. the labor force -- since this is basically all persons in the market for a job (I would also include those not in the labor force who want a job now, but that series only started in 1994):
Here the current jobs expansion looks pretty robust, not just improving strongly but lasting longer than many other recoveries.
Just as with our first measure, let's see how this has changed on a YoY basis:
With the exception of the year 1983, this expansion looks as strong as any other expansion since 1974, and stronger than the George W. Bush expansion. In fact, measured either compared with past peaks in employment, or 5 1/2 years from its start, this expansion is #5 out of 10 expansions since 1950:
5 1/2 years
As shown in the chart above, the current jobs expansion is behind the expansions of 1950, and those of the 1960s, 80s, and 90s, but better than those of 1955, 1958, both expansions of the 1970s, and the George W. Bush expansion.
In summary, when we measure the number of jobs created in this expansion on relevant population-weighted bases, it is a middling expansion, not great, but not so slow as commonly represented.