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February 04, 2006
Is The Labor Market Still Underperforming?
If there was ever an antidote for the worrisome 4th-quarter GDP report, this week was it. Add to the January reports on manufacturing activity, and all manner of things consumer, the unscary report on non-manufacturing activity, good news on factory orders and, of course, the relief of quite decent job growth for the month.
At Angry Bear, Kash provides a nice breakdown of growth by broad industry classification, a picture that confirms the broad-based nature of employment gains. Calculated Risk joins Kash in raising an eyebrow over the especially large contribution of job creation in construction, although I'm not sure I agree with Kash's assessment that "in percentage terms the growth rate of jobs in the construction sector was higher than for [almost] any other industry in 2005." That judgment, however, may be in the eye of the beholder, so I'll let you decide for yourself:
What really got my attention in the commentary on the report was related to this observation, from MarketWatch (emphasis added):
The U.S. unemployment rate fell to a 5-year low of 4.7% in January as 193,000 jobs were added to nonfarm payrolls, the Labor Department said Friday.
The January payroll figures fell short of expectations of a gain of 248,000, but with upward revisions to November and December of 81,000, the total payroll gain in the past few months was a bit more than expected.
Assuming that people who enter the labor market do find a job in the long run, the growth rate of population plus the growth rate of the labor force participation rate (LFPR) should equal the growth rate of employment...
Lately, population growth has slowed, and you can see this in the simple prediction. Demographers predict population growth to continue to slow as the boomers age. Hence, the percentage change in payroll employment will slow unless LFPR continues to rise.
It is clear that plenty of people --
Kash pgl among them, I believe-- think that the participation rate ought to be rising. I am not among that group -- for now.
In a post a few weeks ago, I rejoined the fray, arguing that the decline in labor force participation among 16-24 year-olds has been the source of lower-than-expected job growth in the last three years. With that in mind, I find this picture fascinating:
What interests me is the fact that the participation rate among the youngest workers also fell around the time of that 1990-91 recession (and Jobless Recovery 1!), after which time it stabilized, but did not recover. For all the world it looks like that exact pattern is repeating itself, even if in slightly more dramatic fashion.
The other theme in my previous post was the increasing participation rate of the oldest group of workers, those age 55 and above. Ultimately that trend came to dominate in the latter part of the 90's. If my hunch is correct, it's deja vu all over again, and eventually the dynamics that have been dominated by the youngsters will again be dominated by the AARPers. Until that happens, though, 193,000 looks to me like a more realistic number than 248,000.
Odds and ends: General Glut is not so impressed.
UPDATE: Jim Hamilton puts on a happy face, but is not quite ready to beat the drum.
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Tracked on Feb 4, 2006 6:14:49 PM
Tracked on Feb 4, 2006 6:17:03 PM
Tim Duy: The Labor Force – Views From the Trenches
Tim Duy has some observations on the labor market: A couple of observations regarding the great labor market debate. First, I was discussing the issues surrounding declining labor force participation rates (recently, see David Altig here and here and W... [Read More]
Tracked on Feb 11, 2006 1:20:45 AM
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