The Real US Employment Story

Business, Company Strategy, Economics, Oil & Gas, US

FT US Participation Rate NFP August 2015 9-4-15

By John Richardson

THE “Will they won’t they?” debate became even more intense on Friday following the release of the US Labor Department’s employment report for August.

Whether or not the Fed will raise interest rates in September, or at least by the end of this year, seemed no clearer as the report showed that whilst the number of new jobs created was below expectations at 173,000, the unemployment rate fell to 5.1% – its lowest level since 2008.

Both those in favour of an imminent rate rise and those against were  thus given new ammunition. And to add even further to the muddle, it is traditional that August job-creation numbers are revised upwards when data is re-examined later in the year.

But there is actually no ambiguity behind the data which really matter, as the same Labor Department report also showed that:

  • A record 94,031,000 Americans were not in the American labour force last month – 261,000 more than July – and the labour force participation rate stayed stuck at 62.6% a 38-year low, for a third straight month in August.
  • If the US had the same labour participation rate today as in late 2007 (the last time the participation rate was so low), the nation’s workforce would be roughly 8 million larger than the July figure of about 157 million.
  • Many economists, including those at the Fed, now estimate that about half of the decline in labour participation has been the result of the ageing of the large population of baby boomers, the oldest of whom turned 69 this year.
  • Labour participation rates are lower for workers as they get closer to retirement age, with the economic downturn forcing even more older workers to drop out of the labour force; anecdotal reports abound of laid-off workers taking early retirement.

The LA Times, in the same article to which I have already linked to above, adds:

At the same time, young adults have delayed their entry into the job market, further depressing labour participation. College enrolment rates were rising before the recession, and the weak recovery has pushed more people to stay in school longer while others who were laid off went back for training.

Many people not in the labour force are working off the books or at temporary jobs or as freelancers, making it difficult to track their employment status. Moreover, decades-old structural problems, including access to public transportation and affordable child care, continue to keep some workers, both male and female, from the workforce.

The LA Times then quotes as 2013 academic paper by MIT economist David Auto in which he talks about the US economic landscape undergoing a “tectonic shift”.

Whilst over the past few decades women have gained ground educational and so economic ground, including better labour participation, men have fallen behind, he said.

This has created a vicious circle: Men become less attractive partners, and so children end up living in low-income single-parent households, where the educational and again economic prospects are less for often very bad for those children.

Note that this doesn’t mean to say there is anything wrong with single-parent households. It is just that in America these households are often poor because of inadequate childcare support – and the fact that many of the new jobs that the US has created since the Great Recession have been part time and low paid.

The US has to therefore:

  • Deal with the ageing of its super-rich Babyboomer population.
  • Tack the racial divide by providing the educational opportunities to raise black income levels. The median black family had net assets of only $11,000 in 2013. This compared with $142,000 for the median white family.
  • Tackle the problem of the stagnation of middle class incomes in general.

This last challenge might involve ensuring shareholders don’t benefit at the expense of employees in how employment contracts work.

It is often fantastic for its share price and for dividends if a big US retailer operates “zero hours contracts”.

But what about levels of pay and the stability of employment? What is the greatest net gain for the economy – more of these contracts, or more better paid and more stable jobs?

My arguments have never been about socialism, but about common sense. I don’t care what the political colour of the ideas that get America’s economy back on its feet again, as long as these ideas work.

But it does strike me as common political sense that the US looks at poor childcare provision and its crumbling infrastructure and asks whether improvements can be made.

Equally, America has to deal with its Babyboomers. Today they represent at demographic crisis, but tomorrow they can be a source of tremendous new economic growth.Raising the retirement age and investing in services and manufacturing industries to better serve this demographic are just some of the ideas that make sense.

But back to the Fed. What will happen when interest rates go up? Two things will happen:

  1. The dollar will retain its current strength or gain even more strength. This will cause more economic problems in emerging markets. At the same time, crude will continue to head towards its long-term historic price of $30 a barrel and global equities markets will tank.
  2. The long-term US economic problems I have just discussed will be further exposed. How will these problems manifest themselves? Through a fall in the inflation rate, meaning that the Fed will have conclusively failed in its mandate to get the inflation rate above 2%. The percentage unemployment rate in the US will also rise as the US and global economies slow down.

“What happens next?” will then become the big question.

Let’s hope it is not a fourth round of quantitative easing, as that would be nothing short of disastrous for the US and global economy.

What is instead needed is a cross political party recognition in America of the real challenges ahead.

PREVIOUS POST

Oil Prices: A Turkey Becomes Airborne, Danger Ahead

04/09/2015

By John Richardson OIL prices rose yesterday, despite the latest Energy Administ...

Learn more
NEXT POST

China PP Exports Jump 38% On Jobs Drive

08/09/2015

  Polyolefins markets in Asia are not behaving in the way that they used to...

Learn more
More posts
Developing world polymers demand unlikely to see quick rebound
20/09/2020

By John Richardson THIS IS a tragedy in the genuine sense of the word, not just in the so-often misu...

Read
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read
Pandemic and the developing world: No quick and easy solutions
01/09/2020

By John Richardson POVERTY alleviation in low-income developing countries could be set back a decade...

Read
The pandemic and petrochemicals demand: a whole new approach is required
30/08/2020

By John Richardson MONITORING demand has never been harder because of the pandemic. One of my collea...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more