Albert Edwards (And Goldman Sachs) On "The Biggest Scandal Of The Last Decade": Plunging Labor Force Participation

Tyler Durden's picture

Seven months ago, when the horrendous August 6 NFP print set the stage for Jan Hatzius to lower his outlook for the economy (and all the other sellside lemmings to follow suit), resulting in the announcement of QE2 three weeks later at Jackson Hole by our dangerous monetary Dr. Moreau (not our definition: Sean Corrigan's - more on that later), we dubbed an article titled "Real U-3 Unemployment Rate When Adjusted For Labor Force Participation: Around 14%" in which we warned that the unemployment rate presented for public consumption is really one big lie. Fast forward to today, when we now read that the topic of labor force participation, and specifically the massive plunge therein, is now seen by one of the brightest  strategist minds, that of SocGen's Albert Edwards, as "one of the scandals of the last decade." We thoroughly agree. In fact, we are certain that the labor force participation rate is the greatest scam the government is attempting to pull in order to create the impression that QE is working. The threat of this issue being comprehended by the broader population is finally so big that it necessitated Goldman Sachs' Sven Jari Stehn to come out with yet another extremely humiliating apologist piece of drivel, explaining how the labor force participation rate is really not at all concerning and that one should welcome the fact that less people are in the "labor pool", as a percentage of the total population, than at any time in the last 26 years. Nothing could be further from the truth, and in fact it underscores Bernanke's latest Catch 22 - the "lower" the unemployment (U3) rate is, the worse the economy is, as more and more workers get terminally disenchanted with their labor prospects, thereby validating just how ugly the truth behind the scenes truly is.

Here is what Zero Hedge said on August 6, 2010:

Running these numbers through the actual unemplyment calculation, reveals the following: while assuming a declining LFP rate we obviously get the 9.5% unemployment rate, assuming a peak 67.1% LFP results in a 13.0% unemployment rate. And if the labor force participation rate were to grow according to trendline, the jobless rate in the US today would have been reported at 14.7%, just about where the U-6 was reported, but based on an entirely different methodology.

We even charted this for those whose strong suit is visual learning:

Keep in mind, that as the participation rate plunged since August, this chart looks far uglier now, and the real unemployment rate assuming trendline growth of the population and the labor force participation, is easily north of 15%.

We are delighted to discover that once again we were more than half a year ahead of the curve in spotting this latest attempt at gross manipulation of popular sentiment vis-a-vis some imaginary improvement in the unemployment rate.

So now that the stage has been set in this latest fight of discovering the truth between the forces of pragmatic skepticism and vile central planning propaganda, here is how Albert Edwards sees this topic.

One of the scandals of the last decade is the decline in US labour force participation. Yet despite this “reserve army of the unemployed” holding down wage and price inflation, there is likely to be a cyclical upward shock on core CPI. Given the market’s current worries about the inflationary impact of QE, prepare for a major market over-reaction.

It wouldn't be an Edwards piece without the recount of some self-deprecating anecdote. Well, age is as good as any:

At a macro client lunch recently, it was fear of sharply rising inflation and bond yields that topped investor concerns for de-railing the equity bull market. The discussion of inflation was very interesting but I felt very, very old when one of our guests related that his parents remembered 15% inflation! Hang on, I can remember 15% inflation. In fact, I can remember 25% inflation! Am I really now that old? My mind was transported back a decade when I was in a pub with a work colleague chatting to the barmaid who was a student at the local university. I already felt old when I discovered she had never heard of The Beatles, but on the way out of the pub she told my colleague that "your dad's a real rocker?!" That week I shaved off my moustache to shave 10 years off my appearance. What to do now? Well at almost 50 and newly-wed, I am more than content to become a historic relic and talk about my personal experience of double-digit inflation.

At about the same time I was being mistaken for my colleague's father, US labour force participation was peaking at 67% of the working age population (see chart below). Then, it had been rising continuously since the early 1960s, but the savage decline seen since is symptomatic of the post bubble, Ice Age adjustment and has profound implications.

Next, we take some pride in seeing that Edwards recreates the chart we put out over 7 months ago:

The decline in the proportion of the working age population in the workforce has contributed greatly to the impression that unemployment has fallen. Had the participation rate remained at the 2000 peak of 67%, the official unemployment rate would now be 13% (see chart below). That means the level of unemployment would be some 6.7 million higher than the 13.8 million currently officially registered. The Bernanke Bust has unraveled decades of social progress. (Note that January's 500k decline in workforce participation fully accounted for the decline in unemployment from 9.4% to 9% that month. This lumpy decline was due to a benchmark revision as laid out in Table C of the payroll report - link, but that does not in any way negate the shocking downtrend in the participation rate over the last decade or the fact that if participation had not declined sharply, unemployment would be 13%.

Another way of looking at this is to note how the rise in the labour force has levelled off over
the last few years, despite the working age population trending higher (see chart below).

And for the latest Catch 22 the Chairsatan finds himself in: should we really have an economic improvement, absent massive BLS data manipulation, the labor pool will surge by far more than actual jobs created, pushing the U-3 far higher, thereby extinguishing any simplistic explanations that the unemployment rate is declining due to economic improvement. In fact, the only reason the unemployment rate is so low is that the economy is so bad we have a near record number of people discouraged from actually looking for jobs!

No wonder Ben Bernake is reported on Bloomberg as telling the House Budget committee yesterday that unemployment would remain elevated "for some time" despite the biggest two month fall in the unemployment rate since 1958 - link. For if there is a "true" cyclical recovery, there are an awful lot of discouraged workers who might emerge from the woodwork to keep the rate of unemployment very high and wage inflation at its current low rate.

At this point Edwards shifts his focus to inflation and the impact rising CPI, primarily due to the "rent" component which is 30% of overall CPI, and a reflux of Chinese inflation sent back to the US, will have on rates and equities.

Our own US economists have just done an excellent review of the imminent end of disinflationary trends. They note, in particular, that the rent element of the CPI (both actual and imputed), after slumping into outright deflation, has begun to rise once again (see left-hand chart below). As well as being a weight of 30% of the overall CPI, 'rent' comprises a hefty 40% of core CPI (ex food and energy). Our US economists believe the current cyclical uplift that rising rent inflation should be having on core inflation is temporarily being offset by erratic downward moves in goods inflation that will be reversed shortly - link. A series of 0.3% rises in core CPI inflation will seriously threaten the long-term downtrend in 10y bond yields (see right-hand chart below). Any decisive break above 4% is likely to trigger a melt-up in yields which will in retrospect prove to have been a total over-reaction to what are normal cyclical trends. Therein lies the near-term risk, but also the medium-term opportunity.

Lastly, those searching for inflation in all the wrong places, will have to search no more: the reason -  a 4 month lag between Chinese CPI and US imports of Chinese goods, not to mention that said goods are about to surge in price.

Our US economists believe that an additional factor which will drive core CPI up is that higher Chinese inflation is about to ripple onto US shores. Higher Chinese CPI inflation is set to feed through into higher Chinese import price inflation as wages move upwards in China - our economists note a four-month lag (see left-hand chart below). US goods inflation could be set to rise sharply in reaction to higher Chinese inflation (see right-hand chart below). So, despite Ben Bernanke's firm denials that QE is not responsible for higher global food prices and hence higher Chinese inflation, to the extent that he is totally wrong (surely not!), the Fed's QE policies are likely to have a ruinous effect on both bond and equity prices in the near term.

But going back to the labor force participation. As noted above, there is logical, sensible analysis. And then there is anger-inducing spin and propaganda. As usual we have to go no further, than Goldman Sachs' latest worthless apologist analysis on why all of the above is irrelevant, and why it could actually away in a way that doesn't challenge the propaganda machine's dominant theme of economic improvement.

We draw two broader conclusions from our analysis. First, we find little support for the view that the labor market is even weaker than indicated by the 9% unemployment rate. Since participation has evolved roughly as one should have expected given the underlying demographic trends and the state of labor demand, we believe instead that the unemployment rate provides a reasonable read of the state of the labor market.

Second, given our forecast for participation and the Census Bureau’s population projections, we can calculate how much  payroll growth will be required to reach our forecast that the unemployment rate will fall to 8% by late 2012. The answer is that we need gains in nonfarm payrolls that average around 200,000 per month over the next two years—broadly in line with our current forecast.

Those who wish to read this excremental gibberish in its entirey can do so here. All we can say is that there was a time when Goldman economists actually wrote sensible, insightful work. Now, it is as if Goebbels corpse has been exhumated and is running the GS economic department. We hope the millions in taxpayer-funded bonuses allow the Hatzius et al team to sleep well at night. And yes, the people will not forget those who actively lied to them during the greatest economic depression, when "the recovery" is discovered to have been the biggest lie in the history of the US.

Bottom line - look for a continued plunge in the labor force participation rate as this is the only way that the Department of Truth can persist with its massive lie that the unemployment situation is improving, when in reality U3 is north of 14%, a number that when finally confirmed, would see the president and the Hewlett Packard guy impeached for economic treason.

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Rodent Freikorps's picture

Dear Foreign Dudes,

The debt my government is racking up, I will not pay.

Accept dollars at your own risk, and fuck you very much.


Rodent Six

snowball777's picture

Dear Ratboy,

We'll be more than happy to keep your companies' factories and spend the dollars we already have buying your neighborhood.


Foreign Dudes

Rodent Freikorps's picture

That's cool. How you gonna ship your goods? Hope it is by rail.

That's a nice container ship you have. Be a shame if something were to happen to it.

JW n FL's picture

I am a Pirate... and I am happy to be an active Pirate for the good of my Country.


Privateers and Mariners in the Revolutionary War

The 13 Colonies, having declared their Independence, had only 31 ships comprising the Continental Navy. To add to this, they issued Letters of Marque to privately owned, armed merchant ships and Commissions for privateers, which were outfitted as warships to prey on enemy merchant ships. Merchant seamen who manned these ships contributed to the very birth and founding of our Republic.

Comparison of Navy vs. Privateers in Revolutionary War

Rodent Freikorps's picture


Boarders Away! Bitches.


Patriotism and profits. It just does not get any better.

JW n FL's picture

sprinkle a little Killing in the name of God / Crusade and we will have well rounded lot looking for love in all the right places!

Rodent Freikorps's picture

Odin is pleased by slaughter.

scaleindependent's picture

Why is Odin pleased by slaughter?

mick_richfield's picture

Well, in *my* favorite interpretation of the Norse myths, it's because slaughter on the field of battle allows his Valkyries to collect the souls of warriors.  And Odin knows that, on the Final Day, he will need all the souls of warriors that he can get -- and it still won't be enough.

Ah, crap.  Now I want to read David Drake's Northworld series again, and I just finished it a few months ago.  :-(

Kayman's picture

A couple of dozen container cranes with problems would make privateering unnecessary.

snowball777's picture

We have convoys for that.

How're you gonna pay your sailors with NO SUGAR DADDY?

Rodent Freikorps's picture

Prize money.

What's ten percent of a loaded oil tanker worth?

snowball777's picture

About $30M, but you'll have to get through the 130mm laser-guided cannon shells to lay claim.

Best of luck!

AchtungAffen's picture

Nah, there'll always be enough unemployed Americans to transport containers of goods over logs, as they did with the stones for the pyramids. And they won't complain, else be they accused of "communism" by their peers. And if they complain enough, I'll drop a couple I-phones and GUNZ, and ready. Cheap labour by sheep will never have been so good. They have guns, they think they're free while pulling containers over logs. And if they get bored, there's enough shit for them in their iphones. Thank you Ben, Milton, Ronald for making my business SO COST EFFECTIVE.

Orly's picture

There is far more evidence that the massive stones in the Pyramids of Giza were poured in place from Imhotep's formula for concrete than there is for ever having been massive amounts of massive logs in the middle of Egypt.

Doesn't make sense.

Kayman's picture

Aw... Come on Orly

Now don't be pouring water on the Aliens done it theory.

masterinchancery's picture

Per Monte Python, "things could get broke."

LawsofPhysics's picture

Dear Foreign Dudes,


Yes, the neighborhood is happily awaiting your arrival.  Please stand by the "X" upon arrival.  See you soon.  Don't worry, just like Egypt we are, for the most part, an unarmed populace (;-).



lincolnsteffens's picture

When England ruled the colonies during the French and Indian Wars private ship owners were given commissions "To go forth as if in war". There was a formula for dividing what was seized between England and the privateers. There was also a formula to divide the privateer portion of the booty amongst the owner on down to the lowest rank. Great incentive to attack your foe, eh!

plocequ1's picture

Sounds good to me. Where do i sign up?

JW n FL's picture

TARP ='s $800 Billion Dollars ( )

10% Un-Employment, Cost to Carry... $1 Billion dollars a month...

20% Un-Employment, Cost to Carry... $2 Billion dollars a month... (ruffly)


The First (1st) Bailout of $800 Billion Dollars would pay for 15 plus years of Un-Employment Benefits, if 20% was the number...




The First (1st) Bailout of $800 Billion Dollars would pay for 30 years of Un-Employment Benefits, if the rate was 10%...


Since TARP... Trillions have been spent on Wall Street... the Broke Un-Employed people of this Country (the U.S.) did NOT! rob you blind. The Bankers did. The Lobby did. The Elected Dem's, Rep's and / or other(s) did rob you blind.


It is a Mathematical FACT! 1 + 1 does not equal PINK! it does equal 2.

Rodent Freikorps's picture

And the juggernaut of ObamaCare is still looming.

We are gonna implode.

JW n FL's picture

Obama Care... is a $6b lobby that pushed it through... the $6b didnt come from the Ghetto / Trailer Parks..


Obama Care... does pay out 60% of monies to Private Insurance Providers... Hence the $6b+ Dollar Lobby.


Obama is a Pawn, just like any other elected offical who see lobby monies.


Follow the money in all things.

chubbar's picture

Well, here's some more bullshit to consider. How can our congressmen and senators completely ignore the unconstitutional acts the Obummer (Bush as well) is guilty of perpetrating with this SPP nonsense? This is a fucking outrage. Where is the MSM covering this? Where are the senators demanding a vote on what is clearly a treaty?


The move toward a North American Union received another big boost last week as President Barack Obama and Canadian Prime Minister Stephen Harper met in Washington, D.C. to hammer out a deal on creating a common “perimeter” around the two countries while diminishing the role of the nations’ shared border and developing a biometric system to track North Americans.

The two leaders, touting the plan as a move toward security and prosperity, signed a four-page declaration supposedly committing the two countries to working together on a wide range of issues. According to news reports, the final agreement was the product of many months of work.

The meeting also resulted in the creation of a “Beyond the Border Working Group,” which will be charged with the declaration’s implementation and with reporting to the U.S. President and the Canadian Prime Minister in the next few months and on a regular basis after that.

“Security” and “prosperity” were, as usual, two of the main focuses. “To preserve and extend the benefits our close relationship has helped bring to Canadians and Americans alike, we intend to pursue a perimeter approach to security, working together within, at, and away from the borders of our two countries to enhance our security and accelerate the legitimate flow of people, goods, and services between our two countries,” the declaration states. It also praises the North American Free Trade Agreement (NAFTA) and the Canada-U.S. Free Trade Agreement.

“We intend to work together in cooperation and partnership to develop, implement, manage, and monitor security initiatives, standards, and practices to fulfill our vision,” the document notes, without a reference to the legislatures of either nation.

“We also recognize that cooperation across air, land, and maritime domains, as well as in space and cyberspace, our enduring bi-national defence [sic] relationship, and military support for civilian authorities engaged in disaster response efforts and critical infrastructure protection, have all contributed significantly to the security of our populations,” it says, adding that increased information-sharing and working with all levels of government and the private sector is high on the agenda. Bringing in third countries — Mexico, perhaps? — and international institutions is part of the plan, too.

Essentially, the declaration commits the two governments to work together on everything from health, security, the economy, terror, fraud, and pandemic preparedness to countless other areas where the U.S. government does not even possess constitutional authority to act within the 50 states. Constitutional constraints are not mentioned at all in the document.

The so-called “Agreement Between the Government of Canada and the Government of the United States of America on Emergency Management Cooperation,” last updated in 2008, will apparently be “a cornerstone” of the efforts. While not mentioned by name, the Security and Prosperity Partnership of North America, signed by the Bush regime with the governments of Canada and Mexico, bears striking similarities to the new deal.

Next, the document covers a new area: biometric tracking and identification of North American citizens. “We intend to work toward common technical standards for the collection, transmission, and matching of biometrics that enable the sharing of information on travellers [sic] in real time,” the agreement explains. The two regimes also “expect to work towards an integrated Canada-United States entry-exit system.”........................

downwiththebanks's picture

You act like the law matters!

They just installed a military junta in Egypt.

snowball777's picture

So you're a badass that can take on China, but Obamacare is gonna take you out?


Rodent Freikorps's picture

Don't have to "take on China." Just have to profit mightily and raise their shipping costs.


snowball777's picture

Somehow I don't see you and your buddies in a Zodiak with Lapua magni mounting a huge threat to a Sovremenny class destroyer.

Rodent Freikorps's picture

Warship escorts.

Sounds expensive. Mission accomplished.

China's navy sounds dangerous. When do you think they might move on to modern ships, or even build their own?

The Chinese People's Liberation Army Navy (PLAN) has two modified Sovremenny destroyers, delivered in December 1999 and November 2000. In 2002, PLAN ordered two more. The first of these was launched in April 2004 and delivered in December 2005. The second vessel was launched in July 2004 and delivered in September 2006.

Big ocean. I'm shaking in my boots.

snowball777's picture

$800B in reserves, all the factories, and all the rare earth minerals...they'll be able to afford it.

What do you think they want all that smelting coal from 'stralia for?

You: Somali pirate wanna-be.

And there was that little incident near San Diego...

Rodent Freikorps's picture

Yeah, seems they don't have very many resources close to home.

Lots of Somalis.

Of course, this is all theoretical since the US govt. likes the taste of Chinese dick, and will never issue the Letters of Marque.

You guys never get tired of that story, do you?

Declare war and test your theory. I am comfortable with that.

downwiththebanks's picture

"Obamacare":  a billion dollar giveaway to private insurance companies enabling them to murder their 'clients' and improve shareholder value more easily.

I'm surprised you're not a fan, Rodent:  after all, it legitimates the stripping by big Capital of what little wealth the 'useless eaters' have after the 40 year offensive against their wages and job security.

DaveyJones's picture

don't forget the drug companies.

lincolnsteffens's picture

Notice how the shares of medical related companies didn't tank after the health care billpassed. Notice how many new government and private sector jobs will have to be created to implement and maintain the 2000+ pages of regulation.

Government expansion is one way of making employment #s go up to sop up lost jobs. We don't mind paying a little more in taxes to help Uncle Sam employ more. After all, if we can't make enough to live on we can just apply for one of them new gov. jobs. I suppose, if it gets to be that all you slackers with regular jobs can't afford gov. burden, you can get a gov. job too. Then, we can all do off shore work answering telephones and doing paper work that Uncle Sam contracts out to the Indians and Chinese  Hey, life is good! 


Trimmed Hedge's picture

Who needs a job when you can just sit home all day and get paid for it by the government?



cossack55's picture

Huh. I thought that was my job. Who woulda thunk?

JW n FL's picture

Food Stamps / Un-employment Checks and Jerry Springer keep all the fat, stupid and otherwise engaged Americans entertained while the World ignores Gravity all around them. So yes our forefather would say we have ignored the obvious and will suffer the consequences of doing so.

cossack55's picture

But, since I spend all my time on the sofa with my laptop reading ZeroHedge, does that not make me an IT kind of guy?

Rodent Freikorps's picture

Cousin It?

Okay, I'll give you that one.

wisefool's picture

Trust me. I have done the math. A woman can have children by more than one man.

I did more research and I figured out that men do not want to have children by more than one woman. When Tyler grows up he will change the imagry of this site to Clive Owen instead of Brad Pitt.

DosZap's picture

All those that are currently receiving it, and the music STOPS.

Peace is the x-axis's picture


Consider the business plan:

"To complete the ruin of the industry of the [cattle] we shall bring to the assistance of speculation the luxury which we have developed among the [cattle], that greedy demand for luxury which is swallowing up everything. We shall raise the rate of wages which, however, will not bring any advantage to the workers, for, at the same time, we shall produce a rise in prices of the first necessaries of life ...  We shall further undermine artfully and deeply the sources of production, by accustoming the workers to anarchy and to drunkenness ..."


"The need for daily bread forces the [cattle] to keep silence and be our humble servants."


"...hatred will be still further magnified by the effects of economic crises, which will stop dealing on the exchanges and bring industry to a standstill. We shall create by all the secret subterranean methods open to us ... a universal economic crisis whereby we shall throw upon the streets whole mobs of workers simultaneously."

Compare GS comment -

" should welcome the fact that less people are in the "labor pool", as a percentage of the total population, than at any time in the last 26 years".

How welcome this fact is, greatly depends on who "one" is.

snowball777's picture

Anyone who doesn't want to spend the rest of their lives in gangland, for a start.

I hear the benefits aren't that great if you didn't already have a decent gig to begin with.

99 weeks and counting...

downwiththebanks's picture

Who needs a real job when you can just be a parasitical banker-gangster sucking the blood of productive workers?

vast-dom's picture

But UnN is NOT a SCANDAL because the CORRECT definition of UnN has built into it a variable which by default is vague. So the scandal is the original definition/term/metrics. 

Before God, Dog, and $ there was WORD.

The antediluvian conception of markets will implode but will the structural foundations mutate to serve Man or will Man be enslaved to eternally forage the ruins? 

Oh boy waxing so quasi Oswald Spengler on a Sat.

vast-dom's picture

Why work when billions of QE monies have been gifted and pumped into less than zero worthy causes in order to subsidize venal useless individuals? 

The system is a sham. I would enjoy working on the solution, but not before the whole place has gone up in a shitstorm (the only conditions for semblance of change).


snowball777's picture

We are a small band of highwaymen looking to expand into new territory.

We are looking for a good enforcer that can help perform crowd control duties.

Job description:

- Establish rapport with new clients

- Small weapons handling

- Crowd control


- Should have a commanding voice

- Understand dominator psychology

- Be willing to 'go the extra mile', if necessary


- 15% of all loot gathered

- This is a part-time job