Monday, August 6, 2018

Why Further Growth in US Employment Is Delusional

I want to share a small problem I see with the idea that the US jobs market (and the US economy) has "room to run" (as so many economists and financial analysts suggest).  It's not opinion or guestimates...just math.

First off, just about everyone aged 15 to 64 years old that is capable and/or willing to work, is doing so.  The chart below shows the percentage of each age segment that is presently employed (total employees among each age segment divided by total populations, by age).  The largest segment (making up over 70% of all employees) are the 25 to 54 year olds...and they are essentially hitting peak employment (on a percentage basis) at 79.2%.  In fact, every time they have hit 80% employment since 1980, recession has been imminent.

But with the changing demographics, the 55 to 64 year olds have become more critical.  However, they are at a record percentage of employment (just above the previous peak seen in 2007), suggesting little further growth is possible among them.  And to round out the picture, the 15 to 24 year olds have recovered much of the ground lost in 2008/9 and likely likewise have little further potential to increase. 

So, given we are essentially at peak employment (disregarding the discussion around the quality of that employment), the growth in the population is crucial for further potential gains in employment.  And here, is the BIG problem.  Population growth among the 15 to 64 year old population (blue columns below) has decelerated from it's '98 peak of  2.7 million annually to just 0.5 million in 2018.  It will further slow to just 0.3 million by 2025.  Even assuming the 65 to 74 year olds (yellow columns) will continue on in the labor market doesn't "fix" the situation.  The 65 to 74 year old set will grow by 1.1 million in 2018 but annual growth will continue decelerating, to 0.7 million in 2025.
Below, what this looks like from 2010 through 2030.  Given the existing population is already at full employment, it is the deceleration in annual growth among all age groups except 75+ year olds that limits further labor market growth.  Consider, among the 15 to 64 year old population that annual growth is down by 80% from peak growth, plus even among the 65 to 74 year old population, annual deceleration in growth is imminent from here forward.  Simply put, further growth among the jobs market is screwed (unless you believe the surging number of 75+ year olds are about to continue laboring on, in droves). 
First off, in the post WWII era, the 25 to 54 year old population has comprised about 70% of the total employed population.  So, it should be of little surprise that since employment among the 25 to 54yr/old population peaked in 2000 (blue line below), America's economic growth has shifted to ultra low interest rates (black line=FFR %) and debt (red line, federal debt...beyond repayment) to maintain a synthetic and unsustainable growth.  As the chart below shows, employment among the 25-54yr/old core population has stalled for nearly two decades while population growth slowed and completely stalled since 2007.  The continuing stall in core population (and employment among them) elicited the Federal Reserve reaction of interest rate cuts to incent the substitution of debt for slowing organic forms of growth.
But to see the full picture, the 55 to 64 year old population and employed among them is charted below.  From 1966 to 1993, the 55 to 64 population rose by 4 million, while employees among them rose by just 1 million.  Since 1993, the 55 to 64 population has doubled (+21 million or a 100% increase) while employment among them has risen even faster, (+15.5 million or a 140% increase).  However, this population growth is now rolling over.
And to complete the picture, the 15 to 24 year old population and employed among them, since 1977 (as per available data).  The current population has stagnated for nearly 40 years.
Looking at the year over year change in the 25 to 54 year old population versus the year over year change in employees among that population...(those paying attention will recognize that curve looks an awful lot like the Federal Funds Rate curve over the same period...almost like population growth is the primary driver of demand growth and inflation).
And year over year change among 55 to 64 year old population and employees.  The deceleration taking place since 2012 is clear.


Plus the year over year change in the population and employment among 15 to 24 year olds.  The population is declining and employment among the 15 to 24yr/olds is likely to follow.How US employment and the US economy, particularly an economy that runs significant trade and account deficits, can grow with fast decelerating population growth among the working population is truly a mystery...unless the 75+yr/old population is about to forgo their Social Security and enter the jobs market en masse?  Chart below shows the total number of US 75+ year olds (red line) and the surging annual change (yoy) over the next decade (blue columns).
Additionally, all of this assumes rates of immigration (particularly of the illegal variety) significantly higher than the US is presently experiencing, otherwise outright annual declines are likely.

If the jobs market is to continue expanding and the American economy continue growing, it will require the elderly to work a decade longer, breaking the tendency to earn less and consume less that have existed since the post WWII era began.