Tuesday, September 4, 2018

What Does Full Employment Mean? Recession Dead Ahead...But This Time With a Twist!

Math is generally not a bull-shitter.  It can be twisted and tortured by statistics and convoluted by formula's, but in general, simple math is about as honest as one can get.  So in late 2017, when the Bureau of Labor Statistics suggested that employment would grow by 11.5 million over the next decade (2016-2026), I thought I'd do the math to see for myself if there would be adequate population growth to support this.  I recently wrote an article why further growth in US employment was mathematically unlikely (HERE) and why economic growth under Trump would be nothing but illusory (HERE), but it took me a while to get around to specifically refuting the BLS.  But in short, math says there's not a chance the BLS is right.  But why?

For comparisons sake, let's go back to the 1995 through 2004 period and simply count population growth by age segment plus the participation rate of each age segment (found on the BLS site, HERE).  We see that the 15+ year old US population grew by 26 million, and multiplying each age segment by their participation rates, the potential workforce grew by 16.8 million.Next, looking at the coming decade (2019 through 2028), the 15+ year old population will grow at about 80% of the peak growth period but the distribution of that growth means that the potential workforce will grow at just 40% of the growth seen 20 years ago.  17.6 million of the total 21.2 million persons added will be 65+ years old with almost half the total population growth among the 75+ year olds.  As the bubbles above each age group in the chart below show, participation rates (% of population working) vary wildly by age.  75+ year olds have an 8.4% participation rate, compared to the 81.3% participation rate of 25 to 54 year olds or 71% among the broad 15 to 64 year old cadre.  The BLS estimates that 75+ year old participation rate will edge up to 10.8% by 2026.  But the minor participation rate increases among the 65+ and 75+ year olds are simply a potential of a couple hundred thousand difference over a decade...a mere rounding error.

US 15+ Year Old Annual Population Growth, by Age Segment
Below, annual 15+ year old population growth, broken down by age segments, 1951 through 2028.  Total growth double peaked in 1975 and again in 1999 at 2.9 million annually before the demographic waterfall that kicked off in 2008.  As of 2018, the 15+ US population growth is about 70% of the peak growth at 2.1 million annually.  However, as the boxes below detail, the groupings doing all the growing has radically changed.
US Annual Potential Workforce Growth, by Age Segment
Taking the above chart but based on current participation rates, below.  That is the annual growth in the potential workforce...and the impact is massive.  The demographic driven deceleration in the quantity of potential employees since 1999 should be pretty obvious.  And the decelerating growth in employees represents the decelerating growth in consumers for cars, homes, etc. etc.  Less growth among employees, less potential for growth in economic activity.  Thus, lower interest rates and higher debt per person are the ingredients to sustain an artificially high growth rate.
US Employment/Population Ratio, by Age Segment
So, when I show that we are essentially at peak employment to population ratios for the 25 to 54 and 55 to 64 year old cohorts and structural changes likely meaning the 15 to 24 year olds are at or near peak employment as well...then the growth of employment that is the growth of consumption is essentially done.  Probably time to consider what happens next!?!For those curious about how all the decelerating and elderly US population growth can be possible simultaneously with record crane counts and building...I detail how this is happening and the great urban vs. rural disconnect by region (South, WestMidwest, Northeast) and how global in nature this is, "Global Economy On Precipice of Secular Decline...Detailed via Shifting Population, Demographics, Income, and Energy Consumption"...HERE.

For those who believe the US is not rapidly closing in on full employment, thanks to the lower labor force participation rates of the 15 to 24 year olds, I thought I'd dispel that myth.  The chart below shows the total 15 to 24 year old US population (green line), employed among 15 to 24yr/olds (black line), secondary students (college students...blue line), student loan debt (red columns), and federal funds rate (yellow dashed line).
The 15 to 24 year old total population is less a million more than the previous peak seen in 1980, but the 15 to 24yr/old working population has been in secular decline since peaking in 1979.  Meanwhile the number of secondary (college, junior college, etc.) students has nearly doubled (and of course the debt undertaken for these students has gone berserk).  Anyway, point is that the 15 to 24 year old population is not coming back into the work force anytime soon and thus "full employment" is likely imminent.

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