Friday, May 3, 2013

Folks, The Economy's Stalled (June 9 update)

...the economy is stalled...
The Bureau of Labor Statistics released the Current Population Survey and Current Employment Survey data for April 2013, which provide detail beyond "headline" unemployment (which by the way fell 0.1 percentage point to 7.5%).
I prefer to look at employment data, to lessen the impact of people moving in and out of the labor force. As my baseline I use demographics-adjusted trend employment, to reflect for example the retirement of the baby boomers.
The lead stories (e.g., Bloomberg) point to a drop in the headline rate and a rise in payrolls. However, when we compare employment to what we need to keep up with population growth, April 2013 saw no growth. The graph says it all. (Adding in changes in the number working involuntary short hours doesn't change the story – see the graph to the left.)

Unfortunately, this rate of employment growth leaves us years away from "normalcy" – assuming that we do return to pre-recession levels (and there's no good story why we would not). The projection is based on a regression fit done a couple months ago, when employment growth was higher. So it is if anything pessimistic. Now I can tell a story that once we reach a certain level of recovery, a virtuous circle will kick in leading to faster recovery. The more time passes, the fewer people who are underwater on their mortgages, and the more younger people who have built up a financial cushion sufficient to purchase or renovate housing. As the family budget crunch eases, other consumption will rise, helping the process. And so on. While waiting, let's not think about spillovers from Europe, or disruptions in the BRIC economies, or the possibility of irrational fiscal policy at home.
Finally, because others track employment-population ratios, I present those for 5-year age brackets. The data are noisy, presumably because of small sample sizes (especially for old workers). These show, first of all, that young workers bore the brunt of the recession, but that prime-age workers were hit fairly uniformly, too. Further, while above the 2010 nadir, there's no strong indication that things have improved in the past 12 months.
Note that, contrary to my expectations, early retirement does not jump out of the data. Employment as a share of population is down by 2% for those age 60-64, but actually rises for the 65, 70- and 75+ brackets. While that for age 55-59 is down, it's down by about the same amount as for other prime-age (potential) workers. Now these data make no distinction between part- and full-time employment, nor for wages, so they may mask changes for older workers. However, the overall message is that older workers have postponed retirement, not taken early retirement.
...Mike Smitka...

Prime-Age Worker Employment-Population

Older-age Employment-Population Ratios