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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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Sat, 02/12/2011 - 20:19 | 956625 working class dog
working class dog's picture

 What was the real unemployment rate back in 1981 when I bought a house in Madison Connectiicutt with 30% down and a 15 yr - fixed 18% mortgage. I had a job and I was young in my twenties, a JPM executive lived across the street from me and so did a large insurance company exec. as well as Telecom company exec. when they were breaking them up. I didnt pay attention to Volker but the JPM exec. and the insurance neighbor told me than in 1981 that the banks and the investment banks and the insurance companies would all become one providing the same service, how did they know that way back then? This just tells me somewhere the bigshots have already calculated their next move to screw the average american and the average world citizen. I don't know what the next move is but you can rest assure the big banks and the Bernank know, maybe Timmay too. Hank the Stank Paulson knows and so does Greenspan and Summers, all pukes!!

 

Anyway what was the unemployment situation like in 1982, any schooled economists out there pleas enlighten me I am just a working class dog! dog.

Sat, 02/12/2011 - 20:27 | 956639 snowball777
snowball777's picture

It peaked at 10.8% in Dec '82, but that was because we were battling inflation, instead of causing it like now.

Sat, 02/12/2011 - 20:30 | 956645 Kayman
Kayman's picture

If you are a working class dog, then you should be proud. 

And remember - DO NOT STEAL

The banksters and the government squash competition.

Sun, 02/13/2011 - 03:23 | 957178 slewie the pi-rat
slewie the pi-rat's picture

 

they banks and insurers didn't know!  they thought the sysytem was unstable and they would hafta "merge" to survive.  the prime interst rate was 18% for pete's sake! 1981.  ended up living with the jarhead who built a house, and he needed all the help he could get holding onto it.  he had a second @ 14 3/4% and a first @ 12.8%, with a $118K balance and 4 cents equity.  2 years later he just bailed and started over.  me too.  i went 9 deep on job applications, coming in second each and every time to a person less qualified but more "connected", which made me "overqualified"!  but no cigar, and finally had to re-locate to get outa debt and just survive.  now it is 25 years later and those memories of absolute abject failure for everybody are just fabulous. we had everything, but no money or jobs.  we were too stupid to get food stamps.  but the banks loved us, living on plastic. when i finally got outa that hole i said: never again!  i've never stiffed a creditor.  and i've been debt-free for 25 years.  about 7 years ago, some Macy's clerk convinced me to get a card to save, like $50 at christmas time, so i played along and filled out the credit app.  "Just a minute. sir, we'll have the approval."  then he looked at the screen and went pale!  i had a "job" then, too!  just for fun, i put the stuff in the wreck i call a car, and went back into the store.  people were lighting up their "plastique" like they were gonna blow a bridge!  but i was not impressed.  i was paid in full.  those others were about to re-fi to get outa debt. unless they were physicians, judges, bankers, or... what did YOU do, then?  anyone? 

in the 60's, many of us came to the understanding that owning stuff could result in the stuff owning you.  then, we became masters of the uni, which each generation goes thru, and ended up losing to the stuff, pretty much, eh?  now, the next generation is coming along, trying to decide whether to shoot us in the criminal head or just the felonious ass, i would imagine.  but i did NOT do it.  but i did enjoy watching everybody.  the last 15 years have been incredible.  debt is horrible!  but not to the banks!  people are just now starting to get this, apparently.

the tech "boom" was right outa the cartoons.  i would be on the docks when the fishermen would come in, with, like two salmon, and they would say they made $11,000 in the market!  while fishing!  i'd congratulate tham and ask for one of those nice silvers.  sure, slewie!  i'm not big on fish, just don't like most kinds, but i could trade a 12 pounder for a loin roast or a turkey, or a huge pan of lasagna or whatever in about 10 places, which may not have been, technically, legal, but u know, shit happens. so i was in the fish business, with no over head.  people offered me so much dungeness that year i couldn't handle it, plus those bugs hurt!   shitake mushrooms, artwork, jewelry.  everybody was making "money" hand over fist.  POP! 

then, the RE market.  POP!  now, the debt market.....and people are going:  huh?  what is going on?  we are!  you are!  "they" are. and the guys doing 40+ Billion dollarz a month are sending YOU the bill, while they go thru revolving doors and change titles and avatars! 

just look at the stuff on ZH!  and it's not their fault.  how were they to know houses weren't ATM's?  and they wouldn't go from "worth" $60K to "worth" $600K, and never even slow down, after that, on the way the being "worth" a "million"?  alan greenspan?  Hahaha!  now, the goobermint has gone even more ape-shit, for all the right reasons, of course, and if we don't act, together, the banks are gonna own everything b/c they can push buttons and print green stamps and hypnotize people,  own goobermints, and wipe out entire nations, with the next "re-fi".  everyone is scared outa their wits, and seems to think debt is wealth and pushing a button and giving the digital green stamps to yer bbf's so they can buy shit, send wheat from $4 to $8 and oil to $100, torch everything, and everybody, is REAL.  this is the SECOND complete banking crisis in these 25 years.  the first one, hundreds & hundreds of con men and scooby doos went to prison.  so, they changed all the rules and "self-regulated"---the same shitheads, by the way.  same freaking game, except now, nobody can even design an audit OR an indictment, b/c the products are soooo elegant and the accountants are sooo sharp, so we're in freaking OZ here, or fantasyland, or crystal meth mountain, or somewhere Else Again.   we were preening in our shiny new cars, boats, and planes, and gucci belts and coco chanel's purses, so now, they own Justice, and WE'RE in the slammer!!!  well, we must get employment up, obviously.  yeah, but first let's bust outa this fuking shithole, ok?   jeeeez!  please wake up soon, or i'm just gonna perish laughing, here, ok?   to quote my most favorite speaker of the house, ever, the doe-eyed pelosi, well, we have to do something, don't we?  let's cut everybody's social security and give the assholes in DC a raise, and watch the fuking baksters for another 2.5 years while tyler feeds us questions which divide us and encourages us to "chat among ourselves."  how's THAT for a plan?  tyler, you are fabulous, you fuking BiCH!  can we see the books or are you a steinbrenner?  Hahaha!!!  condo's in fuking cairo $20 a nite, and here's a new poster for you all to enjoy, from WB7!!!  or, let's just register w/ our e's for advice from some we can trust.  or learn to be more polite and stop confusing the common man w/ QEII.  wouldn't it be more PC if we just told them we were gonna get fed to the pigs and get it the fuk over with?  i know a woman who has come up with no less than a dozen "plans and ideas" of what to do and where to go in the last year!  i just want her to sit on my face!

you can imagine how well that's coming along, too!

if i die, i'm gonna die laughing!  just look ad the ads on this page, people, then we can dicuss whether to be a day trader a gold bug, learn bernanke's secret plan, grove on 8 tricks for daily income, practice futures trading, or think about how stupid maria's hat looks! of course, it might be best to just go with "all of the above"  while everything works itself out for us, to our benefit, without having to think about it, ever, at all.

Sun, 02/13/2011 - 10:27 | 957477 afriend2u
afriend2u's picture

Holy kazam rat master! I think you,ve about covered it. Tyler(s) should just re-post your post as a guest commentary and shut the rest of the site down. Except for the ads of course.

What is the freaking solution!... Anyone who hasn't been in a coma the past 3 years can find 6 degrees of Kevin Bacon (how-about that play on your "fed to the pigs" comment!)

So let me get this right... the fed, the treasury, every financial institution and every branch of government is lying to the common man about how bad things REALLY are!? I guess I need to build a bigger bomb shelter.

My favorite new catastrophe spin is.... gold plated tungsten. That cracks me up. I mean what do I do with that one. I guess I better not order my gold from the Bank of Egypt.

There seems to be a common theme at the end of every post on ZH. Were all f^$ked. I get it.

Sun, 02/13/2011 - 10:28 | 957478 afriend2u
afriend2u's picture

Holy kazam rat master! I think you,ve about covered it. Tyler(s) should just re-post your post as a guest commentary and shut the rest of the site down. Except for the ads of course.

What is the freaking solution!... Anyone who hasn't been in a coma the past 3 years can find 6 degrees of Kevin Bacon (how-about that play on your "fed to the pigs" comment!)

So let me get this right... the fed, the treasury, every financial institution and every branch of government is lying to the common man about how bad things REALLY are!? I guess I need to build a bigger bomb shelter.

My favorite new catastrophe spin is.... gold plated tungsten. That cracks me up. I mean what do I do with that one. I guess I better not order my gold from the Bank of Egypt.

There seems to be a common theme at the end of every post on ZH. Were all f^$ked. I get it.

Sun, 02/13/2011 - 22:51 | 958710 Kayman
Kayman's picture

Slewie- ya gots ta stop drinkin yer own urine. After the 3rd recycle all the vitamins are gone.

Sat, 02/12/2011 - 20:59 | 956682 NOPOMO
NOPOMO's picture

Bernanke=Banana Republic

In his case, those Bananas are going to cost you. 

Buffett said it best at the begining of the crisis, the USD will be worthless...he modified his statement to worth less as if that made a dam difference.  Apparently, Buffett was in the know as to what the outcome would be...bailout everyone and punish the taxpayer.  The ship can still be turned around....put a super tax on any corporation that received any type of assistance on par with what they received.

Sat, 02/12/2011 - 21:34 | 956746 litoralkey
litoralkey's picture

This is not a new phenomeneom and has been predicted by paranoid scifi writers for almost a half century.

 

Philip K Dick, George Orwell and Isaac Asimov wrote about the hidden underclass... translated to movies fo those who haven't read it, as Running Man, Total Recall, 1984, and I forgot the Asimov titles of the short stories.

It's a natural response to the brittleness of a centralized fascist state as the ponzi scheme peaks outwards and collapses in to the center of power.

ON the up side, we can all enjoy crazy mashed up House music on the way down.. Carioca Funk of Brasil's officially non-unemployed has gone global!

Sat, 02/12/2011 - 21:57 | 956789 Everybodys All ...
Everybodys All American's picture

With all of the deciet going on how can the honest give good financial  advice. For that matter how can governments allocate funds properly. It's like any true Ponzi I suppose you have to have two books.

Sat, 02/12/2011 - 22:37 | 956848 Bringin It
Bringin It's picture

Re. - Deceit. 

For a long time now, some have complained that food, energy and housing were left out of the BLS CPI algo based on some bs, as if nobobdy needs this stuff.

Now housing is falling/ has been falling for a few years.  Jim Willie says in 2007, housing was added back into the CPI!?!

Sun, 02/13/2011 - 07:27 | 957345 Ironmaan
Ironmaan's picture

If you think labor force participation is low now, just wait until Obamacare kicks into high gear. CBO says there will be 800,000 jobs lost due to people quitting because they don't need health care. I will be one of the 800,000. Thanks sucka's

http://guerillatics.com

Sun, 02/13/2011 - 10:29 | 957480 afriend2u
afriend2u's picture

 

by afriend2u
on Sun, 02/13/2011 - 09:27
#957477

Holy kazam slewie! I think you,ve about covered it. Tyler(s) should just re-post your post as a guest commentary and shut the rest of the site down. Except for the ads of course.

What is the freaking solution!... Anyone who hasn't been in a coma the past 3 years can find 6 degrees of Kevin Bacon (how-about that play on your "fed to the pigs" comment!)

So let me get this right... the fed, the treasury, every financial institution and every branch of government is lying to the common man about how bad things REALLY are!? I guess I need to build a bigger bomb shelter.

My favorite new catastrophe spin is.... gold plated tungsten. That cracks me up. I mean what do I do with that one. I guess I better not order my gold from the Bank of Egypt.

There seems to be a common theme at the end of every post on ZH. Were all f^$ked. I get it.

Sun, 02/13/2011 - 13:34 | 957743 XRAYD
XRAYD's picture

The Goldman 8% unemp by 2012 is unreal - demographics etc. notwithstanding.

 

In 2005-2006 there were many people (some in their 50s) planning to retire on the strenght of their stock market powered 401ks/IRAs, and the "equity" in their homes. Many of these people who were not let go are now planning to continue working because their retirement dreams were shattered. Those who were let go and can't find work will start collecting social security at 62. And those that have found jobs in occupation paying nothing like their former salaries, are likely to to keep working till they drop.

 

The most unfortunate ones got out of the market near the bottom. If they had only known how the Feds were going to create the "wealth effect."

 

Goldman's demographics know nothing about this evidently. 

Sun, 02/13/2011 - 13:55 | 957760 XRAYD
XRAYD's picture

 

We have seen tax-and-tax spend-and-spend reach a fantastic total greater than in all the previous 170 years of our Republic.

Behind this plush curtain of tax and spend, three sinister spooks or ghosts are mixing poison for the American people. They are the shades of Mussolini, with his bureaucratic fascism; of Karl Marx, and his socialism; and of Lord Keynes, with his perpetual government spending, deficits, and inflation. And we added a new ideology of our own. That is government give-away programs….

If you want to see pure socialism mixed with give-away programs, take a look at socialized medicine.

 

 

Herbert Hoover delivered these words at the Republican National Convention in Chicago on July 8, 1952.

 

 

 

After Dwight D. Eisenhower won the 1952 Republican nomination and went on to become president, he wisely disregarded everything Hoover had advised.

 

 

 

http://robertreich.org/post/3243257446

 

 

Of course, we know how the problems Hoover mentions were solved. Nixon went off the gold standard to fiat currency in 1971 - and inflation and government programs continued to grow relentlessly! There is no such way out this time.

Do NOT follow this link or you will be banned from the site!