The Bureau of Labor Statistics has published an “Employment Situation Summary” for May. The nonfarm payroll employment has increased by 54,000. The number of employed in the U.S. increased by 105,000; from 139,674,000 to 139,779,000. These low numbers have come as a surprise for many experts, who predicted 170,000 (http://online.wsj.com/mdc/public/page/2_3064-446888.html) for the nonfarm payroll employment in May. Therefore, the market and general public feel some disappointment> Should they?
In the previous post, we demonstrated that the level of labor force in the U.S. has been experiencing an unprecedented fall since 2008. Figure 1 reminds us that the reason for the fall is not the current financial crisis and recession but rather a new trend in the rate of labor force participation, LFP. This is not a short- or mid-term transient process but the change in the long-term tendency. The LFP had been growing between 1955 and 2000, when it reached its peak. One can consider 2001 as a pivot point manifesting a fundamental change in the labor market behavior in the U.S. It is worth noting that the change in LFP behaviour started ten years ago, not in 2008. (The reader might be interested in the explanation of this phenomenon. We had accurately predicted the 2010/2011 fall in the LFP many years before it happened.)
As a result of the new long-term tendency, one should not expect the same pace of employment growth as it was between 1960 and 2000. In addition to the fundamental shift in the secular LFP evolution, one should not forget another source of employment growth – the level of working age population. Figure 2 depicts monthly increments of the working age population, i.e. 16 years old and over. One can clearly see that the influx of the population has been decelerating since 2000 as well. The deep negative corrections in Figure 3 are associated with annual revisions to population controls. It is not wise to wait that the growth in employment will exceed the influx of working age population in the situation with the falling LFP.
It is important that even decreasing unemployment can not compensate the effects of LFP and population. Figure 3 shows the evolution of monthly increments in employment, E, after 2003 with MA(12). One should not expect that E will be growing at a pace which was considered as a healthy one before 2000 any time soon. In that sense, the today’s BLS news is not disappointing. Really disappointing is the unjustified expectation of any large increase in the U.S. employment.
Figure 1. Measured LFP in the U.S.
Figure 2. Monthly increment in working age popualtion (16 years of age and over) in the U.S.
Figure 3. Monthly increment of employment in the US with its MA(12).
No comments:
Post a Comment