Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Baby Boomer Dynamics, Housing, Jobs Creation, and the Falling Participation Rate

Economics / US Economy Aug 04, 2010 - 04:57 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleJob estimates are often difficult to predict because month-to-month variances can swing wildly. However, census firing is about to take back another chunk of census hiring and I expect another bad looking jobs report this month.

Interestingly, Geithner is making excuses in advance.


Please consider Geithner Says Unemployment May Advance Again Before Declining

Treasury Secretary Timothy F. Geithner said U.S. unemployment may rise again before it falls and the economy isn’t recovering rapidly enough.

“It’s possible you’re going to have a couple months where it goes up,” he said on ABC’s “Good Morning America” program. “People start to come back into the labor force, and that can cause the measured unemployment rate to go up temporarily.”

The U.S. economy grew at a slower-than-expected 2.4 percent pace in the second quarter as consumer spending slowed, according to Commerce Department data. Companies probably added about 90,000 jobs in July, according to the median estimate in a Bloomberg News survey before the Labor Department’s Aug. 6 employment report. The jobless rate is forecast to rise to 9.6 percent from 9.5 percent.

Geithner's Disingenuous Statements

When Geithner says "“People start to come back into the labor force, and that can cause the measured unemployment rate to go up temporarily” he is talking about the Participation Rate (the percentage of the working-age population who are currently employed or are actively seeking work).

The theory Geithner is using is that in a recovery, people who were not in the work force start looking for jobs. Those actively looking for jobs are considered unemployed.

The reality is that were it not for a huge decline in the participation rate (deep into an alleged "recovery"), the unemployment rate would far higher.

Indeed, the unemployment rate dropped in 2010 only because people gave up looking for jobs as unemployment benefits expired.

Civilian Participation Rate


Perhaps people start looking for jobs, but there certainly is no sign of it. If it happens this month, in the face of census firings, the unemployment rate could potentially soar.

Demographics

Bear in mind that it takes between 100,000 and 125,000 jobs a month to keep up with demographics (birth rate plus immigration).

2010 Job Gains As Initially Reported

June -125,000
May +431,000
April +290,000
March +136,000
February -36,000
January -44,000

The net of that is +652,000 jobs in six months, approximately enough to keep the unemployment rate flat for the year. Instead, the unemployment rate dropped along with the participation rate.

Had the participation rate risen (more people looking for jobs than giving up), the unemployment rate would be closer to 10.5%.

Baby Boomer Retirement

The massive increase in the participation rate between 1960 an 2000 is a result of single wage-earner households going to dual wage-earner households (both husbands and wives working), a decrease in average family size, and other boomer related dynamics.

Now, as boomers head for retirement we can and should expect the participation rate to decline. However, I took that into consideration with my estimate that it takes 100,000 to 125,000 jobs a month to keep up with birth rate and demographics. In 2000, the number was close to 150,000 a month.

Bernanke's estimate is 100,000 jobs a month. However, I think he is slightly low-balling for obvious reasons. Regardless, we are both in the same ballpark.

Clinton vs. Bush vs. Obama

Clinton not only had far more favorable demographics to work with than either Bush or Obama, he also happened to be president during the midst of a genuine productivity boom, falling commodity prices, and an internet revolution that created millions of jobs.

In terms of job creation, Clinton was lucky. That combination will not be seen again for decades and he did not have to do anything to get it.

However, one must play the hand one has been dealt, and to show I am not taking partisan sides, Bush and Obama have both blown it with misguided policies and stupid wars.

Housing Boom and Housing Bust

Let's zero in on the participation rate since 2000 to see what trends suggest.


The above chart shows the effect of the Greenspan induced housing bubble.

Even though housing peaked in 2005, commercial real estate temporarily picked up where residential housing left off. That combination kept employment high with countless Home Depots, Lowes, Pizza Huts, etc, adding jobs for two years even as housing went into a tailspin.

This all ended in late 2007 with a thunderous crash of housing, commercial real estate, commodities, and the stock market.

In late 2009, the participation rate rose as people who thought there might be jobs, started looking for them. It was a mirage. As people exhausted their unemployment benefits, they gave up and instead started collecting social security.

Note that as soon as someone stops looking for a job (even if they want one), they are not considered to be unemployed, nor are they a part of the labor force, thus the participation rate drops.

Dynamics at Play

To accurately predict trends in unemployment, one not only needs to estimate the number of jobs the economy will create (or lose), one has to get boomer dynamics and the participation rate as well.

Ironically, one can be wrong on both estimates and still come out OK if the forces balance out.

Best of this Recovery is Over

If the participation rate jumps now, so will the unemployment rate. If jobs decline and the participation rate jumps, the unemployment rate will soar.

To make substantial progress on the unemployment rate, it will take continuously rising jobs (substantially above 100,000 a month), and a falling participation rate.

Not to blow out any recovery candles, but that combination is highly unlikely.

Looking ahead, the jobs picture appears bleak. The best of this recovery is over: Corporate Hiring is No Longer Improving and Americans are Less Optimistic.

Geithner is making excuses in advance, hoping for a miracle that is unlikely to come.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in