Expect High Unemployment for a Decade

Townhall.com ^ | October 10, 2011 | Mike Shedlock

[Kaslin]

Inquiring minds are checking out an interesting "what if" post by Dave Altig, senior vice president and research director at the Atlanta Fed. Please consider Two more job market charts

Payroll employment growth has averaged about 110,000 jobs a month since February 2010, the jobs low point associated with the crisis and recession. This growth level compares, unfavorably, with the 158,000 jobs added per month during the last jobs recovery period from August 2003 (the low point following the 2001 recession) through November 2007 (the month before the recent recession began). One hundred and ten thousand jobs a month compares favorably, however, to the 96,000 job creation pace so far this year.

Are these sorts of differences material? If the economy can find its way to creating jobs at the same rate as the last recovery—which nobody remembers as particularly off-the-chart spectacular—we would be back to the prerecession level of overall employment by spring 2015. If, on the other hand, we can only eke out the sub-100k pace we've seen this year, that date moves out to 2017:



click on chart for sharper image

With a few assumptions, such as the presumptions that the labor force will grow at the same rate as census population projections (for the aficionados, my calculations also assume that the ratio of household employment to establishment employment is equal to its average value since January of this year), the unemployment rates associated with job growth of 158,000, 110,000, and 96,000 per month would look something like this:



click on chart for sharper image

These paths are just suggestive, of course, but I think they tell the story. The same jobs recovery rate of the prerecession period would get the unemployment rate down below 7 percent in four years or so. But at the pace we have been going this year, things get worse, not better.

Good Starting Point for Discussion

I think those charts are an good starting point for discussion, but there are many other factors to consider.

Right now it takes about 125,000 jobs a month to keep up with demographics (birthrate, retirement, and immigration). 125,000 is Bernanke's estimate and I accept it as reasonable.

Because of boomer demographics, by 2016 or so it may take far less than that (perhaps 90,000 jobs a month or so) to keep up with demographics. Then if the demographic trends hold, the number may rise through 2020.

Unfortunately, it is not as simple as that. One must also factor in the ability of workers to retire when they had planned. Many boomers are very underfunded and thus unable to retire when they thought.

Also consider involuntary retirement. Many of those who exhausted all of their unemployment benefits and are approaching retirement age, so desperately need money that they may retire, just to get something from social security. They did not want to retire, but did so out of necessity.

Such factors are a significant reason for the plunge in the participation rate.

Participation Rate



click on chart for sharper image

The falling participation rate is the primary reason the unemployment rate is 9.1% instead of 11% right now.

The civilian labor force offers another look at the current sorry state of affairs.

Civilian Labor Force



click on chart for sharper image

Civilian Labor Force Detail Since 1990



click on chart for sharper image

Here is one of the assumptions made by Dave Altig "With a few assumptions, such as the presumptions that the labor force will grow at the same rate as census population projections the unemployment rates associated with job growth of 158,000, 110,000, and 96,000 per month would look something like ..."

Had Altig made those same assumptions two years ago, the projected unemployment rate for today would not be 9.1% but rather something much higher.

Pent-Up Demand for Jobs

As of September 2011, the civilian labor force was 154.017 million. In September of 2008 it was 154.613 million.

In three years, the labor force fell by 596,000 workers when the expectation would have been 125,000 a month or an increase of 4.5 million workers.

Demographics accounts for some of that drop (to the extent there was voluntary retirement). However, most of that, in my opinion is people dropping out of the labor force unwillingly.

Let's do the math based on projected labor force and current employment of 140.025 million.

Labor Force at Hypothetical Growth Rates Since September 2008

At 125,000 persons per month the labor force would now be 159.113
At 100,000 persons per month the labor force would now be 158.213
At 075,000 persons per month the labor force would now be 157.313
At 050,000 persons per month the labor force would now be 156.413

Unemployment Rate at Hypothetical Growth Rates Since September 2008

At 125,000 persons per month the unemployment rate would now be 12.0%
At 100,000 persons per month the unemployment rate would now be 11.5%
At 075,000 persons per month the unemployment rate would now be 11.0%
At 050,000 persons per month the unemployment rate would now be 10.5%

Had the labor force grown by a mere 75,000 per month vs. expected 125,000 per month, the current unemployment rate would be 11%.

If jobs become available, what subset of the 4.5 million workers who would have expected to be in the labor force (but vanished) start looking for jobs? Assume 33%. That is 1.5 million jobs or 62,500 jobs per month over two years, or 50,000 jobs a month over three years.

If so, even if the economy adds 158,000 jobs per month and only 100,000 of them are needed to keep up with demographics, the unemployment rate will essentially be flat if as few as 33% of those who dropped out of the labor force over the past three years start looking.

The irony is that the better the economy the more people will be tempted to come back into the labor force and the more upward pressure on the participation rate and unemployment rate as well.

Thus, we cannot assume that 158,000 jobs per month will necessarily take the unemployment rate to 7% by 2017. Moreover, I highly doubt the economy averages 158,000 jobs a month in the first place.

Monthly Job Growth 1999-2009



click on chart for sharper image

I posted the above table in November of 2009. The key years are 1999, 2005, and 2006.

Chart courtesy of BLS. Annotations by me, numbers are in thousands.

The areas in deep blue mark recessions.

• At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
• At the height of the housing bubble in 2005, the economy added 212,000 jobs a month.
• At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 96,000 and 178,000 jobs per month depending on where you mark the peak.
  

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution.

Therefore, I suggest 158,000 jobs a month is highly unlikely on a sustained basis.

September 2011 Data

In September, the number of employed rose by a whopping 398,000! The only reason the unemployment rate did not collapse is the labor force rose by an even larger 423,000 workers.

I am not sure what to make of those numbers but if the labor force continues to jump, and employment does not, the unemployment rate will soar. Likewise, if the number of jobs jump and the labor force does not, the unemployment rate will plunge.

Here are the numbers.

Household Data



click on chart for sharper image

Table A-8 Part Time Status



click on chart for sharper image

In the last month, the number of people working part-time for economic reasons jumped by 444,000.

Since there was an increase in 398,000 but also an increase in 444,000 were part-time 46,000 full-time jobs were lost last month.

Extrapolation Highly Error-Prone

Even if the economy miraculously produces 158,000 jobs a month I suggest pent-up demand for jobs will prevent the unemployment rate from dropping as fast as the chart by Altig suggests. The point is moot because that number of jobs is highly unlikely in the first place.

Should Congress do something really stupid, like pass protectionist legislation that the president signs, I expect it will cost 2 million jobs. Please see Ben Bernanke Fans Fires of Protectionist Legislation to Senate Joint Economic Committee; Expect Global Depression if Obama Signs On for my reasoning.

Factors

1. Number of jobs to keep unemployment rate flat (all other things being equal) should decline to 90,000 or so by 2015 or 2016 then start rising.
2. Boomers eligible to retire many not want to because of insufficient funds
3. Boomers may retire involuntarily to collect social security after unemployment benefits expire
4. There is a pent-up demand for somewhere between 1 million and 4.5 million jobs. That number will act as a huge force preventing a rapid decline in the unemployment rate should the economy improve
5. Protectionist legislation
6. Potential jobs bills unlikely until after the next election
   

Mish Projection vs. Obama Projection

All things considered, I see no reason to change a forecast I made just over two years ago: Expect Structurally High Unemployment for a Decade.

Harsh Reality From Bernanke

In the Incredible Shrinking Boomer Economy I noted a harsh reality quote of Bernanke:

"It takes GDP growth of about 2.5 percent to keep the jobless rate constant. But the Fed expects growth of only about 1 percent in the last six months of the year. So that's not enough to bring down the unemployment rate."

Pray tell what happens if GDP can't exceed 2.5% for a couple of years? What about a decade (or on and off for a decade)?

If you have come to the conclusion that we are going to have structurally high unemployment for a decade, you have come to the right conclusion.

In contrast, here is the Obama estimate.



Note that Obama projected the unemployment rate to be under 6% now according to projections of the the American Recovery and Reinvestment Act of 2009.

The only reason the unemployment rate is not 11% (or higher) is because 4.5 million people dropped out of the labor force vs. expected demographic gains.

[Buckeye McFrog]

This is NOT good news for those of us who are Conservative and value Liberty.

Populations inevitably tend to radicalize when placed under this sort of stress over an extended period of time. After nearly a decade of the Great Depression a solid majority was ready to eat-up FDR’s New Deal Socialism.

[kidd]

Unacceptable.

Enforce the laws about employing illegal aliens. Instant 20 million low-medium paying jobs.

Unload restrictive government regulations on gas/oil/coal exploration and mining. Another 5 million high paying jobs and it has the effect of cheaper energy - which will allow employers to hire more people.

Kill Obamacare. Employers won’t be afraid to hire.

Do the above and we’d be back to full employment in 18 months.

[Don Corleone]

Meanwhile the population grows and grows and the looters in DC and their friends elsewhere clean out the treasury. We will soon be like the old USSR only with slightly warmer winters.

[Bean Counter]

This is nothing compared to what unemployment will be when Premier Hussein starts disassembling the Department of Defense in the name of budget cutting.

The fastest way to cut defense spending is to reduce the force. DOD can (and will) RIF thousands of troops, there is no severance pay and most of those former service members will go straight onto unemployment. My Son in law is in Iraq right now being shot at daily, and his biggest worry is what the Army will do with him once the withdrawal from Iraq is complete.

We’ll be fortunate if high unemployment lasts for only a decade....after the damage the current Regime has already done, and after the damage they will do before they are removed from office.

[Kaslin]

You got that exactly right

[EyeGuy]

MY solution as well, but I would expand Number Two to a RADICAL removal of government regulation, bureaucracy and general interference in ALL industries.

Along the same lines, trial lawyer scum need to have some heavy artillery fire directed at them (Tort reform, loser pays, penalties for frivolous lawsuits, etc). They have free reign currently and are destroying our country.

[alloysteel]

Why should we “expect” high unemployment to continue for a decade or more?

The way to short-circuit all this dysfunctional economic balderdash is to call off the anti-capitalists that have invaded and pervaded so many of our government and corporate structures, and allow Americans to be Americans.

Of course, since the “real” America is fast approaching the reality that they could be a minority, time is of the essence. The anti-capitalists are entrenched, but they are not invulnerable. A sleeping giant, the good sensible American people, has finally been proded into reacting to the repeated insults and provocations that have been thrust upon us in the name of “social justice”, an oxymoron if there ever were. Justice may only be dispensed to individuals, not whole social classes, as no groups of ANYBODY are homogeneous, and therefore are inherently unequally remunerated when the paternalistic “Big Brother” dispenses favors. “Big Brother” determines winners and losers, not the honest competition between rivals in the marketplace.

A lot of myths and outright fabrications have been raised in the name of “social justice”, yet not one child had been fed or educated, nor any elder has had an easier time, except at the expense of somebody else, more often than not, by one who would be considered a “peer” of any of these “disadvantaged” classes. And at a far greater cost than simple human caring one for another, apparently a human emotion that has repeatedly been maligned and ignored by the suave and astute “thinkers” of our time.

[reformedliberal]

Absolutely correct, IMO.

Note that the Occupiers are demanding a stipend, regardless of work. This will resonate, especially as so many have lost so much of their savings, assets, income and most are too old to ever be able to recoup. Guaranteed Income has been a Holy Grail for the socialists, just under Single Payer, for decades.

[Graewoulf]

GREAT THREAD! THANK YOU!

One thing that nobody talks about, ESPECIALLY the “economists,” is that the reason for the September, 2008 Crash was the brankruptcy of the Federal Housing Authority, or FHA.

When it went belly-up so did Freddie and Fannie, or to be clever: “The bursting of the Fannie Bubble.”

The end result was that 30 % of the wealth in America was destroyed.

To the best of my knowledge, NOT ONE sorry Federal politician has stood up and said “The Crash of 2008 was my fault.” Until that happens, The US Federal Government will continue to cover their asses with punitive bills, laws and regulations.

All of these actions will continue to reduce the incentive to do work, and therefore decrease the number of jobs in our economy. Thus, the cycle will be made complete as The US Federal Government increases regulations and continues to destroy money to decrease even further the incentive to do work in America. The US Federal Government will then be Public Enemy Number One to America.

This is the Financial Death Spiral that we in America have been placed in by our sorry Federal politicians.

Since the Federal Housing Authority, (it even sounds like a cancerous Socialist unit), bankruptcy has destroyed 30 % of America’s wealth, financial equilibrium cannot be reached unless The US Federal Government downsizes by 30 %.

The US Federal Government has shown BEYOND ALL DOUBT that it is incapable of profitably managing ANYTHING that involves our money.

A good place to start is to Privatize all Welfare Programs that have lost money for two years in a row, or are projected to lose money in the next two years.

That gives the US House of Representatives plenty of time to do the work that we pay them to do, or we vote them out of their job.

[mbynack]

When this mess started, the Congressional Budget Office predicted that it would last 8 months without government intervention. I think they were right. It's the government intervention that's killing the recovery.

I think the democrats are intentionally prolonging the poor economy as an excuse to change the country. They want the poor to rise up and demand socialism. They want to use the poor economy as an excuse to push green technology.

[MeneMeneTekelUpharsin]

Bump for a “I told you so a long time ago.” reference. Ah, screw it. Almost no one in any position to do something constructive about all of the problems is listening.

[Waco]

May be time to require that certain products be made in the U.S.A.,, There’s an instant job market and those employed will be buying things and in turn boosting the ecconmy. Of course other countries may do the same thing. There’s no point in relying on these items production be in China or some other country when no one can afford to buy them cause they don’t have a job.

[ex-snook]

“There’s no point in relying on these items production be in China or some other country when no one can afford to buy them cause they don’t have a job.”

---

Surprising that more Conservatives do not grasp the truth of what you post. No more Conservatives putting Americans first, we are all world neocons now.

[ridesthemiles]

IF a real CONSERVATIVE with some spine gets elected, the economy will come back quickly.

That said, the new REPUBLICAN/TEA PARTY President & Congress need to:

CLOSE the EPA—HUD—Dept of Education—and other departments which are the bottlenecks in getting business going again in this country.

REMOVE the 40 MILLION PLUS illegals in this country. Build the fence- use the returning military members to patrol & guard our own border. Until other countries take us seriously about our border, the problem will be worse, not better. After years of managing to eradicate diseases of both humans & plants in this country, there is a resurgance of both due to illegals coming in with illness & carrying fruits, etc, with agricultural problems. An entire California state campus is facing vaccinations for MUMPS right now because of a severe outbreak & last year, many children died of Whooping cough-which we long ago got under control in the USA.

GET SERIOUS about drug charges of all types. Expel the illegals involved & put the rest into camps like the jail camp that Sheriff Arpaio runs. The middle of Death Valley is a fine location for same. Tents-Peanut butter & jelly & oatmeal & pink underwear & clothing...Sheriff Joe knows how to make things cost effective.

REMOVE the blockades to patents & new products.

RE-EVALUATE EVERY SINGLE PERSON on food stamps—welfare—Section 8 housing—WIC- Disability—EVERY type of Federal/State handout. There are far too many who are sucking money from the taxpayers with bogus ‘disabilities’. If you cannot hold a job because you are a drug addict or you are ‘Too Fat” , you should NOT be getting welfare-food stamps-’disability’ payments.

REMOVE the UN people from New York. Use the building for high end offices. Let the UN build their new facilities in Somalia or Yemen or whatever.

REVIEW carefully the status of every single ‘student visa’ & verify that such ‘students’ are truly attending school. Too many have skipped & their whereabouts are unknown in this country. What are their intentions?

REMOVE the ‘minimum wage’ & ‘living wage’ requirements & let businesses hire who they want at the rate they want.

REMOVE the requirements that Federal, State, County, City jobs like streets, etc, MUST have UNION wages paid. That is a needless expense to the taxpayer & has NEVER assured a better job. As each year passes, it actually does just the opposite.

BAN ACORN & all of it’s affiliates & other like organizations. Their punishment for over 400,000 false voter registrations (which they caught) in Nevada was paltry & an embarrassment. But, then, the AG of Nevada is an Obama sycophant.

REQUIRE each & every registrar of voters in the entire country to purge their voters rolls annually. Dead, moved, missing people are shown on such voters rolls. It distorts the real number of voters who turn out for elections, since the media always reports “the percentage of registered voters who voted”. It opens the door to false votes.

BURY ‘CARD CHECK” once and for all. A secret ballot is the only way for any voting in this country.

DRILL for our own oil & other resources. Let the markets decide who wants to own an electric car. STOP spending taxpayer money on events like Solyndra. That is NOT the job of the FEDERAL government.

GET SERIOUS about making students repay their student loans. That money needs to be available for younger students in the future. There are way too many former students with unpaid loans who are living a high end life style & are not ever expecting to repay their loans. If you are making $61 dollars an hour, you can repay your student loans.—And, yes, I know such a person.

ICE needs to act like the law enforcement body they are supposed to be. Either respond to Sheriff’s calls to pick up an illegal or get out of the way & let the Sheriff’s do their jobs.

CLEAN OUT & FUMIGATE the stench from the current Justice Department. It is a total disgrace how ‘the law’ is being used in 2011. The Black Panthers need to be sentenced for their guilty verdicts in Pennsylvania for their activities at the 2008 voting locations.

END & DEFUND Obamacare. ALL of it. NOW.

CLARIFY the facts about who is eligible to run for President or VP or an office which COULD be in succession for same. Candidates should never be able to hide their past—birth-schools-grades-work history-medical history—nothing should be allowed to be hidden from the voters.

WRITE new Executive Orders, negating everything that Barry the Imposter has signed.

ELIMINATE the CZARS Barry the Imposter has installed & write legislation that prevents such a shadow government from every being put into place again. The public has a right to know who these people are-who is funding them & how much- what their duties are- whom they report to- what authority they have-who is on their staff-everything. The Congress has the duty & the right to properly vet such persons IF they are needed, & it should be done out in the open.

ELECTION donations must be more tightly controlled. Too much money is coming into America’s elections from other countries.

ELIMINATE & REVIEW for the future ALL Foreign Aid. It is beyond stupid to be funding countries who declare their desire for our demise on a daily basis. Politicians have no right to keep paying for the foxes who want to destroy my henhouse.

[Freedom_Is_Not_Free]

You said we should “Enforce the laws about employing illegal aliens. Instant 20 million low-medium paying jobs.”

Right.

Meanwhile, the California legislature is set to pass the California Dream Act.

http://farmworkersforum.wordpress.com/2011/03/16/california-dream-act-passed-the-higher-education-committee/

This is not about giving illegal aliens in state college tuition. It allows them to compete for SCHOLARSHIPS and GRANT money, taking them away from US citizens living in California.

We are so screwed.

California is doomed.