Retired (until there is a job available)

January 10, 2016 7:00am by

544 thousand jobs added in the final two months of 2015 appears fantastic, so why doesn’t it seem that way recently?  And why is the unemployment rate quickly flattening at about 5%?  These are interesting questions that demand new insights into the probability and mechanics of the participation data last year.  What we witness from the charts below is that it is rare for the nonfarm payroll to be so robust, with zero improvement in both the unemployment and underemployment rates.

In fact, the underemployment has gone up!  We demonstrate that as the unemployment rate tabluation destructively fell from 6.2% in mid-2014, to ~5.5% in mid-2015, it happened as larger numbers of people of all ages simply fell out of the labor force (or ‘retired’, to provide a positive spin).  In the past couple months however, as we hover at this low 5% unemployment, there has been a sudden resurrection of these ‘retired’ people reappearing in the labor force!  With middle-aged White men around the globe economically agonizing, and then committing suicide, it is important to see all of the data fully and not focus merely on simple top line job statistics.

In the illustrations connected below, we show the distribution of the 2-month change in (un/under)employment rate versus the 2-month change in the nonfarm payroll.  We look at all data since 2000, therefore capturing approximately two economic cycles.  The data in red color highlights the past year, from the rest of the data.  And this past year we essentially see clusters not at all behaving as nicely as the rest of the -45 degree relationships shown.  With most of the past year seeing data to the lower-left of this negative relationship.

Well now, the green color boxes highlights the past month’s data, from everything else.  We can now gauge how rare it is for the (un/under)employment rate to be neutral or rise, given the number of jobs stated to have been gained.  This is a rare 1% event.

In the chart on the left (below), we see how the 2-month change in the number of people not in the labor force (NIL) has unnaturally surged during the one-year period from June 2014, through May 2015.  The unemployment rate fell to 5.6% in December 2014.  For the 6-month period from then, through May 2015, each month saw a typical 135 thousand people discharge from the labor force (or shown as >270 thousand every 2-months!)

That is nearly twice the rate we should have, in the healthy economy, and it is a warning that some data manipulation has created rosier-looking unemployment statistics.  And these numbers continued to get more preposterous, over the next 5 months, through October 2015.  We see on the right side of the chart a rise to 413 thousand NILs every 2 months.  Of course this was not a genuine reflection of economic reality, and hence November and December 2015 have been belated payback!
A devastating 343 thousand reduction in those exiting the labor force.  Of those, and extraordinary 153 thousand always wanted a job, probabilistically substantiating that many of these who were initially counted as ‘retired’, really were not.
Other forms of payback -over the past 2 months- show up in the flattened unemployment rate (and a disheartening underemployment rate that has edged up 0.1%!)  The overall picture here, through the different visuals above, is that the labor market is a little more stressed than one would glean, simply looking at the top-line data at face value (here, here).

 

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