Big Red Car here on a Saturday morning getting ready to go out for blueberry pancakes at the Counter Cafe.
I have always been interested in delving beneath the covers of employment in the United States. The average person focuses on BLS (Bureau of Labor Statistics) U-3 – the widely reported level of unemployment which is currently at 3.9%, but that paints a very shallow picture of the employment status of the economy. Perhaps, an overly optimistic one.
Let me give you the bottom line first – the US economy is undergoing a huge structural change as the Baby Boomers begin to retire and younger folk have a different attitude toward employment.
I have often observed that the prospect of long term, stable employment is a thing of the past and the “gig” economy is here to stay. Talking to you, Mr. Internet.
My favorite source of useful data and analysis is dshort.com which is run by Doug Short, PhD, under the banner of Advisor Perspectives. You should be reading this guy’s stuff. The best in the business.
I am taking a look at “core” ages 25-54 unemployment (BLS U-3) which factors out the very young and the Baby Boomers. It is the vast majority of the working population.
As you can see, unemployment for this cohort is at a very low level at 3.4%. You would have to go back to the turn of the century to find better numbers. Those numbers are only better by 0.5MM jobs. We could be there in the next six months.
Labor Force Participation Rate
The Labor Force Participation Rate – Civilian Labor Force divided by the Civilian Noninstitutional Population (i.e., not in the military or institutionalized) – for the same slice of America is as follows.
Two important considerations:
1. The US will have to create more than 1.7MM new jobs and fill them to hit the numbers in the 2008 timeframe.
2. The US will have to create more than 3.0MM jobs and fill them to hit the turn of the century numbers.
This is why I have said to be cautious about taking too much comfort solely from U-3 unemployment numbers. They may provide a false sense of optimism when you take a look at Labor Force Participation Rate.
On the positive side, if the economy were to continue to create and fill jobs at recent rates, it would take 1-3 years to hit those numbers. Can the USA do it? Yes, I think so, but we are a long way from there.
Employment to Population Ratio
This is another chart worthy of your consideration. It shows the ratio between total jobs filled and the total population in that age slice.
Two important considerations:
1. It will take 1.4MM more jobs to hit the 2007 peak.
2. It will take an additional 3.4MM jobs to hit the turn of the century peak.
The Baby Boomers
What are the Baby Boomers doing? They are working and retiring. Look at this chart.
Since 1999, the number of 65+ still in the work force has more than doubled.
Part time v full time employment
This chart shows the part time v full time employment picture for all over the age of 16.
What it shows is that during the Great Recession the part time jobs began to accelerate and full time jobs began to decelerate. In 2015, the trend reversed itself. [Obamacare had some impact on this because of the impact of employers being fined if they failed to provide health insurance for full times, but not penalty for part timers.]
The same analysis for ages 25-54 is not quite as clear — meaning the cross back is not quite as pronounced. Still, it is there.
Bottom line it, Big Red Car
The US employment picture cannot reliably be assessed by simply looking at BLS U-3 unemployment numbers. One must be sensitive to core employment (25-54), the Labor Force Participation Rate, the Employment to Population Ratio, and the mix of full time v part time jobs.
Keep an eye on those Baby Boomers.
There is a structural change well underway in the US economy as it relates to employment. Know this.
We have said nothing about average household income and average wage rates (both increasing).