Sunday, May 31, 2015

Fed Optimistic about Job Creation

Via The Conference Board regarding their Most Controversial Labor Market Chart (May 27, 2015):

"One of the charts central to our labor shortages work shows that there will be almost no growth in the U.S. working-age population (defined as persons aged 18-64) in the next 15 years [see the blue line in their chart below]. This is markedly different from other periods in U.S. history. Even just a decade ago, the working-age population was growing by more than 1% annually, and in earlier periods it grew around 2% per year. This has a major implication for the U.S. labor market. Since we are already at the natural rate of unemployment, a 15-year period with almost no growth in the labor supply is likely to create a significantly tighter labor market and labor shortages across the United States."

(* My related post: Over-Saturated job Market Depresses Wages)

Labor Chart

One of the main reasons they give us is this (based on data from the Bureau of Labor Statistics):

"The millennial generation is larger than the baby boomer generation — but the proceeding generation, Generation Z, is smaller than the millennials — so much smaller that between 2020 and 2030, this generation will be about the same size as the baby boomers turning 65, generating very little growth in the labor force. Since everyone who will be 18 in 2030 is already born, and since the death numbers are relatively stable, the only factor that could cause this forecast to be inaccurate is the number of net migrants to the United States. The topic of immigration and how it relates to labor shortages is going to be a central focus of our research in the coming year."

Question: So if birth rates are down and death rates have stabilized, are they proposing more immigration to create more jobs for all those who are unemployed today?

From the New York Times: U.S. Economy Contracted 0.7% in First (May 29, 2015)

"The 0.7 percent decline in economic output in the first quarter of 2015 was a reversal of the initial 0.2 percent advance for the period reported last month by the Commerce Department ... The lackluster report for January, February and March underscores the American economy’s seeming inability to generate much momentum."

And that's with low gasoline prices! Maybe the "lackluster report" is because too many people couldn't find jobs and dropped out of the labor force (and now are no longer counted as "unemployed"). And of those who did find work, most of the jobs created have been part-time and/or low-paying. If a lot more people had jobs and were paid more, they could spend more. I really don't see how more immigration could create more jobs by their additional "demand" for goods and services if they don't have jobs to pay for those goods and services. Isn't that like putting the cart before the horse? What came first, the chicken or the egg? What came first, the worker or the job? What came first, supply or demand?

Instead of importing more "people", maybe we should import more "jobs". Maybe if we reshored the millions of jobs that were offshored overseas, we could build more stuff to sell to ourselves. But American companies are paying people overseas to build stuff to import back to the U.S. to sell to us.

Fed Optimistic about Job Creation

Room for Improvement (by Narayana Kocherlakota, President Federal Reserve Bank of Minneapolis (May 28, 2015:

"At the end of 2013, many observers were concerned that the Great Recession of 2007-09 had created a new downgraded baseline for U.S. labor markets. But, as I will show you, the United States experienced rapid improvement in labor market performance in 2014. There is no longer evidence that the American labor market is trapped in some kind of dismal “new normal” in the wake of the Great Recession."

But according to the Bureau of Labor Statistics, over 11 million Americans dropped out of the labor force just since the recession ended in June 2009 — and very month, they continue to drop out of the labor force (that's why the unemployment rate has dropped, because these people are no longer counted as part of the labor force). But then the Fed goes on:

"In the absence of such evidence, I believe that policymakers should strive to facilitate ongoing improvement in labor market outcomes until they more closely resemble those that prevailed before the Great Recession. By some key metrics, the labor market improved more in 2014 than it had in almost 20 years. Yet, by these same metrics, we would need to see at least three more years like 2014 for labor market conditions to return to their 2006 levels."

But were 2006 levels all that great? The labor force has been in decline since 2000 when Bill Clinton changed the status of China’s trade relations with "PNTR". We've been hearing this sort of optimism from the Fed and others for the past 6 years — ever since the Great Recession was supposedly over — but then the Fed goes on:

"From 2006 to 2009, we saw a marked deterioration in labor market performance. As recently as a year ago, it seemed like this loss of human resources might prove to be permanent. But the rapid growth in employment that we saw in 2014 shattered this hypothesis. The lesson of 2014 is clear: We can do better."

Over the last year (that he speaks of) 1,175,000 more Americans dropped out of the labor force. From a previous post I wrote (December 26, 2013):

"A combination of demographic, structural, and cyclical factors has affected the overall labor force participation rate. In a December 2013 (16-page) report, the BLS projects that, as has been the case for the last 10 years or so, these factors will exert downward pressure on the overall labor force participation rate over the 2012–2022 period and the rate will gradually decline further, to 61.6 percent in 2022."

The Labor Force Participate Rate (LFPR) last hit its record all-time high in April 2000 at 67.3% — and its currently at 62.8% — and is projected to be at 61.6% in 7 more years. Question: When human labor becomes obsolete, then what? And what about the Fed's claim? "By some key metrics, the labor market improved more in 2014 than it had in almost 20 years."


  1. Bloomberg (May 14, 2015)

    "Views on the U.S. economy dropped to a five-month low, and confidence also retreated among full- and part-time workers."

  2. Federal Reserve: Report on the Economic Well-Being of U.S. Households in 2014 (Published May 2015) — 108 pages (PDF)

    From their keys findings are below, but there is much more – If you don't have time to read the entire report, just scan their interesting charts.

    * Forty-nine percent of part-time workers, and 36 percent of all workers, would prefer to work more hours at their current wage if they were able to do so
    * Thirty-one percent report going without some form of medical care in the 12 months before the survey because they could not afford it.
    * Twenty percent of respondents report that their spending exceeded their income in the 12 months prior to the survey.
    * One-fifth of respondents have no bank account or have used some form of alternative financial service in the past year.
    * 31 percent have no retirement savings or pension.
    * Forty-five percent of non-retirees who plan to retire expect to continue working in some capacity during retirement to generate additional income to cover expenses.
    * Forty-seven percent say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money. (NOTES BELOW)

    Over two-thirds of respondents with a household income under $40,000 report that they would sell something or borrow money to cover a $400 emergency expense or could not cover the expense at all. Among respondents who save, those with a household income under $40,000 are most likely to be saving for unexpected expenses, while those with an income over $100,000 are most likely to be saving for retirement.

  3. Economic Populist (May 29, 2015)

    "First quarter 2015 real GDP just went negative with a -0.7% contraction. Remember folks, two consecutive quarters of negative growth can make up an official recession. We'll be looking very closely at how Q2 is shaping up but so far, it ain't too swank. This [latest] report shows simply very weak economic demand."

  4. it's hard to be surprised by this. ... how can the labor participation rate NOT drop in light of almost all US companies taking part in the world wide glut of labor afforded to them since NAFTA and PNTR ... yeah add 500 million or a billion workers to the supply of labor from which all the capitalist have access, and wonder why you won't get a raise or lifetime job like your grandfather.