Larry Summers on Labor Participation Rate

Bruce Krasting's picture

Larry Summers Blows It on TV 

Courtesy of Bruce Krasting

The Labor Force Participation Rate (LFPR) is a key economic statistic today. Changes in the LFPR are shaping the direction of the capital markets, federal economic policy, monetary policy and, most importantly, politics.

The LFPR hit a new record low on Friday. The key question that must be answered is:

Is the current LFPR a temporary phenomenon, or is this the “New Normal?”

If the current LFPR is, in fact, the new normal (I think it is), it has profound implications on the macro economic outlook for the USA. Virtually all of the economic models used by CBO, OMB, SSA and private economists are assuming that the long-term LFPR will be in the mid-to upper 60s. The consensus is 2-3% higher than where it is today. 

If you plug in a rate of 63% versus 67% over the next ten-years, it makes a huge difference on the size of the deficit and the public debt. It would cause the deficits at Social Security and Medicare to explode. The percentage of GDP attributable to the government would inevitably rise. The economy, and society in general, would be socialized. 

I don’t think there is a macro economist or economic policy deep-thinker out there that does not recognize the significance of the LFPR, or that it’s hitting new lows.

Let me confirm the data. This from the BLS. Note that January's reading fell 0.3% to a multi-decade low:

This chart is also from the BLS. The trend is obvious:

I think most of the Biz press had the story right. The drop in the LFPR was highlighted (accurately) by many:


Okay, I hope I’ve convinced you of two things. 1) The LFPR is a very important statistic, and 2) The BLS reported on Friday that the LFPR had fallen to a new record low in January.

Now listen to what Larry Summers had to say about the LFPR this morning on ABC’s This Week show. (This is a painless, no commercial, 90 second video.)



Larry Summers is a possible candidate as the next Treasury Secretary. He has all the credentials. He knows where the bathroom is; he’s had the job before. But he blew it on the issue of what happened to the LFPR this month. He gave the wrong answer, with 10mm people watching. 

Looking at the macro picture, anyone that is worth their salt should not have gotten this wrong. It’s too important. Possibly an explanation by Mr. Summers will be forthcoming.



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Problem Is's picture

"At least he knows where the bathroom is."

Fat Larry knows for sure where the buffet table is...

The Robert "The Rube" Rubinite Principle
The incompetent financial elite always fail upward... lubricated by tax payer bailouts...

DevilsPrinciple's picture

Larry Summers uninformed and clueless ? Color me shocked.

steelrules's picture

I pick Brooksley Borne or Elizabeth Warren for Treasury secretary,

Sorry I just have a thing for honest principled woman!

mehdi's picture

John Mauldin (not an Obamaite): 


There were some early comments that the unemployment number was lower because another 1.1 million people dropped out of the work force, no longer looking for work. If you read just the simple number, you might think that. But there were asterisks all over this report, telling us we had to look deeper. A lot deeper.

First, this was the normal month for annual revisions, when the Bureau of Labor Statistics (BLS) makes adjustments to the prior year's data, based on new information. And there were some extensive revisions. So the number in the workforce did not actually drop. Those who thought so "completely missed that this million+ people isn't some new January phenomenon, but a result of the BLS using the 2010 census data to have more accurate data. In other words, the changes in the Household Survey to the various measures had taken place over the years prior to 2010, but for simplicity's sake, the BLS incorporates these changes into one month (which they clearly point out)." (Source: The Big Picture)

Spread out over 10 years, 1 million people is not all that much on a per-month basis. If you just looked at the numbers in the actual release, it would also lead you to believe that somehow last month around 1.2 million working white men and women just disappeared, or that the number of working Hispanics rose by 800,000. There are a lot more of those types of anomalies. But they are also explained by the fact that the BLS incorporated the recent 2010 census data into their formulas. Apparently, the Census Bureau found a lot more Hispanics and Asians in the country than they did in 2000, and that forced the BLS to make adjustments in their estimates, as they did with their numbers of people in the workforce.

All these numbers need to be taken with a large dose of salt, as they are subject to large revisions. This past year the BLS adjusted the employment numbers on a monthly basis, mostly upward, as more jobs were created than they estimated, which is normal for a recovery. In the last recession, they had to go back and adjust the prior numbers downward. It is simply the result of using models and making estimates. The BLS is very straightforward about how they make their models. You can re-create them if you want to. If you go through that process, you get a better understanding of the extent to which the monthly employment number is just an estimate.

For instance, last month, rather notoriously, the BLS found 42,000 new delivery jobs. No real surprise, as Fedex and UPS and other delivery companies hire more workers for the holiday season, and as more and more of us shop online. But those are temporary jobs, and the BLS likes to use seasonal adjustments to smooth out such anomalies. A friend of mine talked with them today, and they said that they recognized the problem and had made adjustments to their models to take into account the new seasonality of holiday hiring. Next December there will be no surprise of 40,000 temporary jobs showing up in the data. And did they back them out in this release? Yes, but in the revised December data. 


masterinchancery's picture

No, the question is whether the government "statistic" for labor force participation is legitimate, or merely made up for political purposes to reduce the unemployment rate.  Answer:  Door B.

SmoothCoolSmoke's picture

So, did the talking head give him a pass, or call him on the lie?  Lemme guess. 

 Lying, the new black.

mayhem_korner's picture



Since when did facts get in the way of someone seeking high political office?

Mercury's picture

If current, incremental job gains were characterized by lots of higher quality positions instead of temp work and jobs reflective of lower expectations the LFPR wouldn't be so alarming......but that's not the case.

Worse, many of those nice paying, high tech jobs that so many have set their hopes on have an ugly underbelly too.  Check this out:

lizzy36's picture

Larry Summers is often WRONG.

Makes me laugh when he talks about Dodd-Frank. Wasn't he one of the leading proponents of repealing Glass-Steagall? Also wehn Broksley Born tried to argue that CDS should be regulated around turn of the centruy who shut her down? Yes that would be Larry Summers.

Although poor fat jabba the hut must be green with fucking envy over Sheryl Sandbergs FB payday. He was her mentor, and now she is a billionaire. And poor fat larry, the best he can do is running around the country with pitchbooks, academic appointements and lying on ABC.

DeadFred's picture

The algos read the numbers but they also 'listen' to the news comments by the likes of Summers. The numbers said decline in LFPR Summers says no decline so an important parameter for their daily strategy just moved from (-) to the (+/-?) category. Net result another 1/2% increase in the S&P. Just a theory, but if correct I expect the market to act bullish as if some real 'good' news was released. Then again how could one tell if the market is acting uncharacteristically bullish? 

mayhem_korner's picture



I wonder when they'll integrate transcription technology with a polygraph...y'know, just for the benefit of the algos.

killedbyshortvol's picture

Larry Summers for Treasury Secretary?  Didn't this guy blow up the Harvard endowment?

DeadFred's picture

How does that not fit the job description?

Zero Govt's picture

perfect CV ...and perfect compliment to what Benny is blowing up over at the Fed

America could have shit in stereo

Shizzmoney's picture

Glenn Hubbard and Larry Summers can go suck a bag of dicks

Problem Is's picture

Fat Larry is not done grazing at the buffet table yet...

traderjoe100's picture

What a clown this larry summers is, what a clown...


So sad ...



Joe Davola's picture

Are you afraid of sad clowns?

papaswamp's picture

LFPR dropped in all segments except 1...which has been rising for the last 2 decades... THose with less than a HS education. The cheap, uneducated worker has seen their participation levels rise, and stabilized through the latest recession.

Now compare it to the 'most desirable' hires..the Bachelors of Higher:

HS grads and AS degrees see the same downward trend. 16-19yr olds aren't worth putting up since they passed record lows a few years ago.

saycheeeese's picture

this guy  is a a crook and a liar but..... presidents loves to be fooled. WE DON'T  

DeadFred's picture

A crook and a liar... no wonder our current Commander-in-Chief loves him.

Zero Govt's picture

Summers has been paid to get it wrong (ie. a Govt crone) for so long he wouldn't know what right is if it smacked him in the nose.

Liking this new fizzy sharp presentation stylee Bruce

Peter Pan's picture

They say that his parents use to hang sausages around his neck when he was a kid, just to make the dog play with him and that his parents ran away when he was 4.

Seriously though, is there any wonder why the USA is losing its way when sad sad individuals like Summers are given both time and space on national TV?

Bansters-in-my- feces's picture

Larry Summers makes me fucking puke.

Just hearing the name is like fingernails on a blackboard.

Larry as Treasury Sec would be a insult to the world ,never mind the American people.


lotsoffun's picture

timmie is keeping a low profile.  would we want him to return?  how about good old billie dudley, let them eat ipads?  geez.  we're fked.


falak pema's picture

The bigger question is how would he would be different to Geithner and what impact it would make to can kicking and fiat printing in the new O'bammy administration if incumbent is re-elected. 

From BK's take it is clear that "lies" would become "damn lies"... BK has this uncanny skill of bare bones analysis like a top surgeon with scalpel. 

lotsoffun's picture

big bad bama gets re-elected.  no other choice.  i can vote for ron paul, but it means nothing.  maybe one day his son will run.  after barry hussein soetoro whatever  wins, the chips come off the table and things become interesting. 

Peter Pan's picture

Your analogy is perfect.. The man has sold his soul to the dark side a long time ago.

Fozzy Slippers's picture

Where you gona hide Larry?



Peter Pan's picture

I would say under a rock would be appropriate.

Nobody For President's picture

OK - we all agree he was lying. BFD. How do you know when a politician is lying? ...You all know that one, too.


So back to the decline in the LFPR. Given the possibility that the BLS actually got a statistic reasonably correct, WTF is going to be happening/already is happening? The conventional thinking, well put by Tempo, is these folks all become welfarites, propped up by an increasingly unstable system.

I think something else may be happening to the folks that drop off the end of extended unemployment benefits and 'officially' become part of the downward line of LFPR - they move into the shadow economy. They barter. They part-time/leverage two or three small jobs into a barely living wage, because they are paid under the table = no benefits, but no taxes either. I know a number of these folks 'getting by' (sometimes illeagal substances are involved), but I'm in a rural area. I suspect they same thing is going on in the cities, as well. No longer counted in the construct known as 'the economy', but not on welfare, and not homeless - hanging on the edges, and the edges are growiing like crazy.


Bruce, I would love to see your take on the 'shadow economy' - this article was excellent.


FreeNewEnergy's picture

NFP, I agree 100% with your comment on the shadow economy. I recall that back in the mid-70s (I think), the government abruptly stopped reporting their guestimates on the size of the "underground" economy, probably because it was, a) impossible to track accurately, and b) growing so fast it was an embarrassment.

Here in Upstate New York's finest city, Rochester, there has always been a fairly stable economy, even as Kodak has declined from 60,000 local workers to less than 12,000 today, so the shadow economy is more the food stamps for money and drug dealing kind, though a lot of contractors and their workers work completely off the books. A few get caught now and then, and it makes the local TV news.

Now, in the cities of Buffalo and Syracuse, which are not so well-endowed as Rochester, the cheating on taxes and black markets are thriving. My view is a bit shaded - being in a relatively stable place - so I would imagine the shadow economies in Florida, Nevada and other hard-hit places is much larger.

Check out a book called, "Last Call." It's about prohibition, and states that during the height of prohibition, the shadow economy was actually larger than the "real" economy, which begs the question, how sound are the government's numbers, anyhow?

Also, small businesses have always and will always cheat on their taxes at every opportunity, mostly because they have to, but partly because they think government takes too much. It's the American way.

Seeing Larry lie, boldfaced, on national TV was a great start to Super Sunday, topped only by Manning's pass to Mannigham, Bradhaw's fall into the end zone with the winning score and Justin Tuck's sacks of Tom Brady.

Long Giants. Short Larry. Very, very short.

Dermasolarapaterraphatrima's picture

"Shadow economy" is the next big 'growth industry' that will be second only to the black market in commodities.


pmm009's picture


gmj's picture

I thought his speech was very goal-oriented.  His goal is not to explain or fix the economy.  His goal is to get Obama re-elected.

Newsboy's picture

Straight faced lie. Very good, Mr Summers, but that big blink as you began to say "Labor force participation rate did not decline" was a bit of a tell, dontcha' think?

Let's work on that, shall we, Mr "Treasury Secretary"?

Stuck on Zero's picture

You are right about the blinking.  He knows he's lying on camera.

Vlad Tepid's picture

He's a microexpression analyst's wet dream...

Westcoastliberal's picture

He thinks he's the smartest guy in the room.  Just say no to Larry Summers.

tempo's picture

It obvious LFPR is falling because of the world wide labor glut which is forcing competitive wages to unbelievable $5/day w/o benefits, medical, or retirement. So central Governments buy labor peace in the USA/EU with long term unemployment benefits, food stamps, student aid and part time jobs all financed with massive trillion $ deficits. Everyone in Washington and Wall Streets knows the LFPR will continue to decline but the consequences of admitting the facts and cutting entitlements is far, far more painful than the extend and pretend strategy and telling more silly stories on MSNBC.  The idea that millions of people will start looking for work over the next few months is laughable.  Follow the real time Federal income tax collections on a weekly basis...They are now starting to decline which means job creation is also declining.

economics1996's picture

Larry Summers is a fucking idiot that is paid a lot of money to be a idiot.  He should be the janitor.

wonderatitall's picture

a janitor?  i own and run a small commercial maintenance company. started it years ago to get away from the constant noise of rodent-wheel america. i ask simple questions of any new hire though hiring now is a gamble with the 50 layers of nazi democrat goobermint sticking thier sweaty hands into our pockets. imagine asking a buffoon like the ENTITLED SIR LARRY. like where is the building? larry ,lord of the rats  replies, "what building sir?"  then he has his union goon police force elimate me. "now", larry says," now no building, no problem"





HD's picture

Janitors contribute to society - that's more than anyone at the Fed or Treasury can say.

Summers should be put in a row boat, towed 200 miles out and paid minimum wage to study how long it takes him to row back.

no1ego's picture

I'd fight Larry Summers. 

Village Smithy's picture

I feel that way to sometimes, like if your going to be a bigshot in the political arena you should have beeen able to hold your own at the back of the school yard. It's a bit base I know. Nice article Bruce, it exposes the fact that they can't have it both ways. If the unemployment rate is dropping due to decreased LPR then we have bigger problems on the horizons. So, what's it gonna be? 

Everyman's picture

This is the well in which we draw stupid fucks for "leadership: in economic policy?  Seems we need to end this long line of stupidity, and I am sure it will take violence.

dwdollar's picture

OH NO!!! You mentioned the forbidden word!

We're all suppose to believe this will fix itself by lots of talk and the "(re)education" of people who are paid to be stupid.