America’s Structural Jobs Depression – Part 1

A good friend and colleague of mine, John Titus, started drilling down deep into the Government employment data in order to understand exactly what was going on with the employment situation in this country.  What stimulated his desire for the truth was the fact that the knowledge that the monthly employment report fed into media headlines by the Government is obviously fraudulent.

When I saw the original graph (presented below) that he had created to illustrate the deep structural damage to America’s labor force, I encouraged him to write a guest blog post, as presented below:

Friday’s employment report confirmed the jobs disaster that is the U.S. economy. Below we demonstrate that it’s far worse than even many cynics have previously imagined.

While the mainstream media trumpeted the 6.3% headline unemployment number to what remains of its audience (i.e., rubes), the real action was in the Labor Force Participation Rate. It declined an eye-popping 0.4% in a single month, from 63.2% in March to 62.8% in April. Now the figure matches what it was back in March 1978, when the Bee Gees “Night Fever” topped the charts. How low we’ve sunk…

The Labor Force Participation Rate provides a good measure of what portion of the population is paying taxes (and, by subtraction from the pie, what portion is piggybacking). As such, its usefulness as a barometer for the health of the overall economy is far superior to the headline number, which is good for small talk and little else. How many people know how the headline number is even computed anyhow?

The Labor Force Participation Rate is simply the number of people in the labor force divided by the civilian noninstitutional population.

The labor force figure consists of people working or looking for work
The civilian noninstitutional population (“CNP”) consists of people 16 years of age and older who are not in an institution (prison, mental ward, etc.) or in the Armed Forces

Right now, there are 155.4 million people in the labor force (data link) compared to  the civilian noninstitutional population of 247.4 million people (data link). That’s where the 62.8% Labor Force Participation Rate figure comes from:

The following chart shows the Labor Force Participation Rate going back to January 1953 (the start of the Eisenhower Administration), providing us with fully six decades of data:

(click on graph to enlarge)

GRAPH1

Civilian Labor Force Participation Rate – St. Louis Fed/BLS

The chart indicates four notable points about the Labor Force Participation Rate:

Blue:  the average LFPR (63.2%)
Green:  the all-time high LFPR (67.3%, in February 2000)
Red:  the all-time low LFPR (58.1%, in December 1954)
Yellow:  the current LFPR (62.8%)

What is more telling than any of these points, though, is the sweep of the series.  After climbing for 35 years starting in about 1965, the Labor Force Participation Rate topped out in the first quarter of 2000 and has been declining ever since.

The Labor Force Participation Rate is an aggregate figure, though, so there’s not all that much more information to be wrung from of a graph of it per se.

However, when the constituent data that make up the Labor Force Participation Rate—that is, the Labor Force and the Civilian Noninstitutional Population—are disaggregated and compared month by month, a much clearer picture of what’s been going on in the economy emerges.

This process is conceptually simple.

Each year, the Civilian Noninstitutional Population (“CNP”) grows by a certain number of people.  From April 2013 to April 2014, for example, the CNP grew by 2.26 million people. On balance, 1.4 million of these people should have entered the labor force. That’s because the labor force amounts to roughly 63% of the population (and 63% of 2.26 million is 1.4 million), the six-decade average participation rate.

According to Friday’s jobs report, the actual total/cumulative number of people entering the civilian labor force from April 2013 to April 2014 was only 62,000 (155.421 MM minus 155.359 MM).  Employment Situation Summary, Table A – BLS

That’s a tiny fraction of the 1.4 million labor force entrants one should have expected. Instead of 1.4 million people entering the labor force, only 62,000 did. That’s a paltry 2.7% of the 2.26 million people added to the CNP over the last year.

Thus, for April 2014, the Marginal Labor Force Participation Rate—that is, the percentage of new additions to the CNP who make it into the labor force for a given 12-month window—was only 2.7%.

Just so we’re clear on what the Marginal Labor Force Participation Rate is all about (and so as not to depress ourselves), let’s look at a year that was good for the American workforce. A prime example is 1985 (with the historical labor force participation rate of 63.2% again denoted by the dotted line):

(click on graph to enlarge)

GRAPH2

As you can see, 1985 was a strong year. In January, the labor force grew by a whopping 2.52 million people over January the year before. By comparison, the civilian population grew by only 1.85 million people over the same period, meaning more people—upwards of one million more—got jobs in January 1985 than who entered the civilian noninstitutional population.

That might seem implausible at first blush:  how can you add more people who have jobs than the total number of people in general?  One answer is that working age people who weren’t in the labor force before January 1985 either got jobs or started looking for work (perhaps induced by rising paychecks or easy employment).

In January 1985, the Marginal LFPR was 136%. It was again over 100% for February, March, April, September, October, and November. Moreover, the Marginal Labor Force Participation Rate was above the 60-year average for every month of 1985.

The worst month of 1985 was June, and even that print was above (though just barely) the 63.2% six-decade average.

Years that are filled with months like those of 1985 push the broader Labor Force Participation Rate upwards. In baseball, if you were batting .300 before the game, and you go 4-for-4, your batting average is heading north of .300. The same is true here.

Likewise, a string of months where the Marginal Labor Force Participation Rate is below the historical average drags the LFPR down.

This is apparent at once from the following chart, which depicts the monthly Marginal Labor Force Participation Rate with a white line. It is very volatile. In a short time span, it would appear noisy. But over six decades, its patterns are clear and unmistakable:

(click on graph to enlarge)

GRAPH3

For purposes of comparison, the Labor Force Participation Rate is overlaid in blue. You’ll notice that when the blue line rises, it’s being pushed up by long stretches where the Marginal Labor Force Participation Rate is above the historical average.

The five longest above-average stretches have been filled in with solid white, the five longest below-average stretches with red. The latter pull the all-important blue line down. When chart below goes “red,” it means that the economy is not able to absorb the relentless growth of the civilian noninstitutional population at a normal or healthy rate. With that in mind, observe the U.S. economy over the last 60 years:  Take a good look at that last red region. Does that look like a recovery?  If 1958 was a severe recession according to Larry Summers, how would he refer to what we’re in now per the labor market data shown on the right side of the graph?

This chart leaves little doubt that the U.S. entered a structural employment depression some time ago. It reflects an economy where job creation is flat or severely restricted in the face of a working age population that’s growing by 25 million people per decade.

The last time the Marginal Labor Force Participation Rate posted a print above 63.2% was November 2008—exactly when the crisis hit. That was 65 months ago. Worse still is that in August 2009, the rate actually went negative. Yet Wall Street/government economists and the media contend—without paper bags over their heads—that the recovery had been underway for two months at that point.

All of this has occurred, mind you, against a backdrop of the Federal Reserve’s quadrupling its balance sheet. Supposedly this wholly unprecedented effort was undertaken to help employment. The Fed is shooting pool with a rope. It is failing so spectacularly that one must question its true intentions.

In reality, the last time the Marginal Labor Force Participation Rate was negative was July 1962, when John F. Kennedy was in office. Economists and media types who talk up “the recovery” since 2009 are dreaming, to put it charitably.

Good times for America ended a long time ago. Some time between 1984 and 2004, the economy—the real economy, not the pretend economy propped up on fake data by teleprompted parrots—reached a tipping point. That is what this graph is telling us. Something happened.

The downturn that arrived in 2008 was not cyclical, as mainstream figures would have it. On the contrary, the current jobs depression is deeply structural, and it’s showing up in a labor force participation rate that has stubbornly refused to stop spiraling downward for well over a decade.

This appears to have the BLS tied in knots. Its jobs report Friday was outright schizophrenic, with the Establishment survey reporting 288,000 new jobs compared with 73,000 jobs lost in the Household survey. Really? Government statisticians can’t get by with a 350,000-new-job margin of error for a single month? Those numbers are patently incredible.

One final note on regular and marginal participation rates. It might appear, based solely on the Labor Force Participation Rate, that things changed in early 2000, when that measure peaked. This figure, though, reflects only the surface of America’s jobs ocean. The deeper tectonic shift in the economy occurred much earlier and isn’t detectable with the aggregate labor force figure, a somewhat blunt instrument.

In Part 2, we will use the more sensitive Marginal Labor Force Participation Rate data to isolate exactly when the tipping point for the U.S. economy occurred—as well as the forces behind it. As we shall see, America’s structural jobs depression is about as inadvertent as an assassination.

It is time to cope with what has happened to America.

About the author:  John Titus has practiced patent litigation for 20 years. He wrote and produced “Bailout,” a 2012 feature-length documentary about the financial crisis, and is currently working to launch an internet video interview show that will examine economic issues.

9 thoughts on “America’s Structural Jobs Depression – Part 1

    1. Agreed, a great exposition of the real facts. Very informative. However, it still relies upon data provided by the BLS which I consider highly suspect. I’d be willing to bet that things are a lot worse than even this article reveals.

      1. Yes, we realized that we were using rigged data but my friend/colleague has done a great job of showing how bad it really is just using the rigged data that is available.

        Several analysts like John Williams who study this data for a living have compelling arguments showing that true unemployment rate is well over 20%.

  1. Nice collaborative ongoing efforts Dave.
    It’s amusing hearing that 3 people become “employed” if a guy or gal has 3 part time jobs, and similar magic conjuring and vanishing acts from the royal jesters.
    Now Mr. Titus’ Part 2 should be something to behold, tallying more historic number crunching around “America’s structural jobs depression”.
    We can count on the BLS to do a number on it at the next go round, and avoid all the talking points showing their days are numbered.
    Too late to stand up and be counted when you’re out for the count.
    The point they’ve made is that they’re at the point of no return.
    They’ve run out of rules to break and truth to stretch by any stretch of the imagination.
    They’ll crack under the strain well before they can paper over all the cracks and well before any of their reports is worth the paper it’s printed on.

  2. I wonder when we will reach the point in time where robbing banks will be listed as self employment in the jobs number.

    Does drug dealing count as self employment, small business or growth industry? Inquiring minds want to know /sarc

  3. My read on the chart. 54 to 71: more or less level. One income families living well. 71 to 90 women entering work force, dollar, free from gold, being inflated. 90 to 08 more or less level two income families not living any better that the one income folks from 54 to 70. Continued inflation of dollar. 08 to present economy dies. Three income family needed to stay in middle class.

  4. Walmart and Amazon stocks are losing ground; twitter and King (of Candy Crush) are also losing ground. When the people don’t even bother to twit or play games anymore is an indication something is seriously amiss.

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