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Archive for the ‘Economic Data’ Category

Where have all the workers gone? The real truth behind the drop in the labor participation rate.

One of the common views regarding the labor participation rate declining is that many baby boomers are retiring and leaving the work force.  Unfortunately many are finding that retirement is a myth when you are broke and many will be working deep into their later years.  So when we examine the numbers we actually find a large part of our older labor force is still fully engaged in some type of work.  It is interesting to look at many dynamic areas to try to ascertain why the drop in the labor force is actually occurring.  Digging for that needle in the economic haystack can be a challenge.  The labor force participation rate is a better indicator of how many people in our society are actually working.  We already know that the drop in the unemployment rate is largely due to hundreds of thousands of Americans simply not being in the labor force anymore.  Just because you sweep dust under the rug doesn’t mean it is now gone.  So where have all the workers gone?

Civilian labor force participation rate

The labor force participation rate has steadily declined throughout the last decade and more steadily since the Great Recession hit:

We are now at multi-decade lows when it comes to those participating in the labor force.  The common Cinderella storyline behind this drop has to do with our aging population and many older Americans entering blissfully into retirement.  But that presupposes that people can actually afford to retire which for most Americans is largely not the case.  What we find is really a few big reasons why the rate has steadily fallen and none are exactly positive when it comes to the overall economy.

Case #1 – Older workers

What is fascinating when we look at the data carefully, we find that many older Americans are still working:

This is at a peak and has actually increased steadily throughout the decade and has held steady which somewhat flies in the face of the argument that older Americans are “retiring” in droves.  Sure, many baby boomers are hitting what we would call retirement age but the idea that all of these people are somehow quitting work to drink Margaritas on South Beach is one big myth.  The above chart is a clear example as to what is really going on.  Older Americans are going to be working deep into retirement and the new model of retirement is no retirement at all.

Read the rest at My Budget 360

Told ‘ya so, given the leading indicators in the Fed indices

Real gross domestic product — the output of goods and services produced by labor and property located in the United States – decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

That will be the end of that.

CNBC is spinning like crazy, but it’s hard to spin this number.  It sucks.

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, decreased.

The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending that were partly offset by an upturn in nonresidential fixed investment, a larger decrease in imports, and an acceleration in PCE.

Yes, the government was real.  But the real inventory numbers are more meaningful.

“Buying” growth with federal spending doesn’t work.  Rick Santelli is hammering on this and he’s right – this is a crap report and is underlining exactly what has been going on for the last several years.

There were other big distortions in the data that were helpful to the number — for example, “equipment and software” which was up big, but almost all of that is likely attributable to the fear of expiring tax credits for accelerated depreciation (which means “look out below!” for first quarter’s report in another three months!

Exports are down big (5.7%) and that is likely not related to tax policy.

Government spending’s decrease was all defense; ex-defense it was up 1.4%.

Finally, real gross domestic purchases were only up 0.1% .vs. 2.6% in the third quarter.  That’s real final demand – and it collapsed.  Note that this was into the holiday season and thus would be expected to be seasonally strong.

Disposable personal income was up big — and that will require some investigation.  A large part of this may be pulled-forward asset sales to get under the tax increase window.  The “savings rate” increase implies this was at least partly the case, and may be entirely the case.

Current-dollar GDP (adjusted for inflation) was up only 0.5%, which sucks.

This is a crap report but has hair all over it.  While there will undoubtedly be plenty of people pointing fingers when you get the one-time distortions from the fiscal cliff fears out of the report the real issue is found in inventory and domestic purchases – and both of those suck.

Update: As expected, the detail tables tell the tale — the personal income addition was from asset sales and special dividends, presumably to get in front of tax rate changes.  Specifically, wage income increased by $62 billion, but income receipt on assets was up $141.6 billion on the quarter, a monstrous change.  Last quarter this figure was slightly negative and historically it tends to be reasonably stable.

The Market-Ticker

Discussion (registration required to post)

Perhaps the “recovery” is a Mind Trick played on the weak-minded.

Those with vested interests in the Status Quo tout data that supports the claim the “recovery” is now “self-sustaining,” meaning that the economy is now expanding fast enough to fuel new growth. In this view, the Federal Reserve’s extraordinary policy interventions (zero interest rate policy, $23 trillion in support provided to the global banking system, 3.4% mortgage rates, etc.) and the Federal government’s unprecedented fiscal stimulus (borrow and blow $1.3 trillion a year) have done their job; the economy is now “self-sustaining,” meaning that it can continue growing as Federal deficits shrink and the Fed trims its quantitative easing policies.

The data favored by the Status Quo interests are GDP (which rises when the government borrows and blows trillions of dollars), housing sales (still low compared to 2006, but better than 2011) and consumer confidence, which is hitting multi-year highs. Consumer confidence is a quasi-quantitative measure of the critical “animal spirits” that Keynesians look for to drive more borrowing and spending: if you feel wealthier for whatever reason, that confidence arouses your “animal spirits” to rush out and buy something, preferably a house and a car.

Those looking at fundamentals such as household income/debt and sales see more of a Mind Trick being played on the weak-minded. If you can convince me the economy is expanding and inflation is rising, I will be more likely to risk borrowing and spending more than I can afford. The “real” economy might be sputtering, but my belief in the “recovery” will support my confidence in the wisdom of leveraging more of my (shrinking) income into debt-based consumption.

This debt-based consumption (according to the Keynesian Cargo Cult) will spark so much “growth” that the expansion will become self-sustaining. Corporations will see the rise in sales and become confident enough to make capital investments and hire more workers, who will then spend their paychecks consuming more stuff, and so on.

So the task of the Status Quo shifts from actually expanding the economy to persuading us the economy is expanding. If the Mind Trick works, then maybe the unleashed “animal spirits” will actually spur real-economy growth.

It appears a certain number of buyers are convinced housing has bottomed, and this confidence (misplaced or not, no one yet knows) has persuaded them to buy real estate. This has indeed fueled a self-sustaining growth cycle in some areas, as people waiting for the bottom are jumping in, pushing prices higher and drawing in more converts.

On the other hand, if household incomes continue weakening, then the confidence of all those real estate investors in rising rents and 100% occupancy might not align with reality as well as they anticipate.

All debt and consumption is based on income. Consider these charts:

Notice that the only age bracket with rising incomes is the 65 and over cohort; everyone younger than 65 has seen their income slashed.

As I have observed many times before, the middle class filled this gap between rising costs and stagnating wages with debt.

Income for every age group other than 65+ seniors has declined sharply:

The income of those in their peak earning years 45-54 have been slammed:

With debt levels still high and income sagging, where is the higher income needed to support higher debt and spending? Lowering the interest rate has enabled higher debt, but now that interest rates are negative (below the rate of inflation),they can’t go any lower: the Status Quo has run out of “stimulus” and now must rely on manipulation and artifice–Mind Tricks–to persuade people a stumbling, stagnant economy is growing robustly enough that they should risk their future prosperity on debt-based consumption in the present.

Self-sustaining recovery or Mind Trick? We may not know for some time if the Mind Trick worked or not, but the real economy could rise up and shatter the illusion at any time.

Charles Hugh Smith – Of Two Minds