Are Another 1.3 Million Americans About To Drop Out Of Labor Force (And Send Unemployment Plunging)?

Tyler Durden's picture


With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?


As we warned in November, the only two charts that matter ahead of Friday's likely distorted nonfarm payrolls report.

First, the labor force participation rate, which plunged from 63.2% to 62.8% - the lowest since 1978!


But more importantly, the number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans! This was the third highest monthly increase in people falling out of the labor force in US history.

At this pace the people out of the labor force will surpass the working Americans in about 4 years.


And if the Congress does not pass the bill to extend emergency aid - set to expire Dec 28th - then up to 1.3 million more people will be added to that list of 91.5 million already our of the labor force (and another 800,000 more to come in further months)...

This has profound implications for the oh-so-important unemployment rate that  the Fed is so dependent upon...

JPM's Feroli: One observation that could set an upper bound on thinking about a participation effect is to hypothesize that all 1.3 million EUC claimants exit the labor force after benefits expire in 1Q (again, should Congress allow that to happen). In that case, the unemployment rate would fall by 0.8%-pt, obviously an extreme example. Some of the Fed studies can help to narrow the range of outcomes.


One of the more recent works (Farber and Valletta from the San Francisco Fed) indicates that about a fifth of long-term unemployment is due to extended benefits. With just over 4 million long-term unemployed recently, this would imply that the absence of extended UI benefits could lower the unemployment rate by 0.5%-pt.

This will directly impact the Fed's credibility to manage the economt in a "data-dependent" manner:

JPM's Feroli: Setting aside the normative aspect of whether from a public policy perspective this is a desirable or undesirable outcome, such a fall in the unemployment and participation rates could create some tricky choices for Fed policymakers as they assess the health of the labor market.

Remember, while consensus is convinced Taper is a positive (the Fed wouldn't pull back unless everything is golden); we suspect, and today's Treasury Auction Failure supports that thesis, that the Fed is looking for excuses to Taper (or shift policy away from QE)...

As we have noted numerous times before; the "taper" is all about economic cover for a forced move the Fed has to make:


1. Deficits are shrinking and the Fed has less and less room for its buying


2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed's position (repo markets, bond specialness, and fail-to-delivers among them).


3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point


4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time...

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Mon, 12/02/2013 - 15:44 | 4207261 Four chan
Four chan's picture

even santa deserves an obama phone and an ebt card,

Mon, 12/02/2013 - 16:34 | 4207492 NotApplicable
NotApplicable's picture

I see that "Taper Tyler" made it in to work today.

Sure they "have to" taper. Problem is, that's an instantaneous endgame move, and thus is wholly moot in this version of reality.

Mon, 12/02/2013 - 16:56 | 4207601 SamAdams
SamAdams's picture

The FED doesn't want to taper, even if the unemployment rate decreases, they will find weakness which justifies further easing (bank bailouts).  It's not yet time to completely destroy the strength of America, but soon.  Remember, the profane still have their guns (NYC and CA excepted).

Labor participation rate is a classic head and shoulders pattern, but we all know technical charting means nothing when the invisible hand is at work.


Mon, 12/02/2013 - 17:46 | 4207797 aVileRat
aVileRat's picture

Remember how Death of a Salesman was the siren call for that 'lost' generation crushed in the 1929 stock crash ? How they all wanted meaning to their lives and One More Deal ? How the flower children rallied and hated their 'arrogant' parents for their blind consumerism and clinging to the talking points of corrupt think tanks pre-war ?

Yeah. Good times.

Energy progressive taxation, healthcare expenses (drug & insurance) and non-core inflation will drive people into a desperate hunt for yield to offset their declining purchasing power. Their generational shame as pensions & retirement plans returning 3% (net trailer) are falling vs. a 50% ROI market will force them into higher risk assets. They will MOMO seeking The One More Deal to offset the gambler remorse of 2007 and validate their egos stoked by 40 years of direct-to-consumer marketing pushes. Their lacks of functional families, borne of their rabid support of progresive family structures have left them alone in old age. The only thing holding them together is the media message drilled into them since 1960 George Lois ads which told them they were 'unique' and a superior generation. They will cling to that superiority through ethical product purchasing no matter how bad it hurts their dwindling savings.

Like Willie Loman, they are going to be the elderly greeter at the door of your big box store or retail dealership. They will never retire. It will be worse than Japan because their remorse will become resentment at the next generation. They who never had ambition to build their own firm or speak their mind will suddenly feel that the world deserves their 'wisdom' and in turn, economic growth must become their charity.

On that note, who's up for some beer pong & Amazon cyber monday sales ?


Mon, 12/02/2013 - 18:58 | 4208014 Son of Loki
Son of Loki's picture

I'm too busy watching Duck Dynasty re-runs to play beer pong with you today. Sorry.

Mon, 12/02/2013 - 16:39 | 4207528 rubiconsolutions
rubiconsolutions's picture

But....but...but..CNBC tells me the economy is improving.

Mon, 12/02/2013 - 16:57 | 4207613 SamAdams
SamAdams's picture

The economies of CEO's, Chairman's, Treasury Secretaries and Mammonite Politicians have increased, aren't you paying attention?

Tue, 12/10/2013 - 19:44 | 4234187 Debeachesand Je...
Debeachesand Jerseyshores's picture

The title should read: "Another 1.3 Million Non-People will be dropped from the Public Conscious.

Mon, 12/02/2013 - 15:45 | 4207263 Al Huxley
Al Huxley's picture

Those are the new bitcoin millionaires.  Also, I don't think the shrinking deficit will be a long-term problem for the FED.

Mon, 12/02/2013 - 15:50 | 4207288 NoDebt
NoDebt's picture

"Also, I don't think the shrinking deficit will be a long-term problem for the FED."

Thank you for that, Al.  It's been my thesis all along.

Mon, 12/02/2013 - 15:45 | 4207267 NoDebt
NoDebt's picture

Unemplyment rate, perhaps the only number even less relevant than GDP.

Mon, 12/02/2013 - 20:53 | 4208326 BraveSirRobin
BraveSirRobin's picture

I had an economics professor who loved to say "Figures don't lie, but liers love to figure." He harped on the unreliability of government data. He had a theory that there was a strong inverse correlation between government lies in economic data and freedom.

Mon, 12/02/2013 - 15:45 | 4207270 Bay of Pigs
Bay of Pigs's picture

Fascinating, bewildering and utterly tragic all at the same time.

Mon, 12/02/2013 - 15:57 | 4207314 Grande Tetons
Grande Tetons's picture

Think of it this way...the Fed is on pace to own the Bond market and eliminate the labor market. Now that is fucked up. 


I guess we are all going to get paid to stay at home. 

Mon, 12/02/2013 - 16:04 | 4207335 depression
depression's picture

Win / Win for the Progressives.

This is Price Fixing on a Grand Scale.

Once they own everything (capital, labor and production capacity), they can set the price of everything at what they deem to be a 'fair' value.

It's really quite an ingenious plan.

Mon, 12/02/2013 - 19:17 | 4208064 mvsjcl
mvsjcl's picture

They all ready own everything. They're tired of pretending that they don't, and would rather just have it out in the open.

Mon, 12/02/2013 - 15:46 | 4207273 the not so migh...
the not so mighty maximiza's picture

They can never taper, even if they stop counting everyone and unemployment becomes 0.

Mon, 12/02/2013 - 16:10 | 4207378 Lore
Lore's picture

Re: "the people out of the labor force will surpass the working Americans in about 4 years."

Anyone who doesn't believe we face absolute, imminent, wrath-of-God CRISIS is ignorant, a fool or a lying psychopath.

Mon, 12/02/2013 - 15:49 | 4207275 Dr. Engali
Dr. Engali's picture used "fed' and 'credibility' in the same sentence .....twice. Could you keep a straight face while typing this?

Mon, 12/02/2013 - 15:54 | 4207313 krispkritter
krispkritter's picture

That can be a new ZH word: 'Fedibility', lacking any and all credibility to the point of causing one to cackle hysterically.

Mon, 12/02/2013 - 15:47 | 4207278 krispkritter
krispkritter's picture

And I'll give you three guesses as to who will take credit for the drop and the first two(like the 1.3 million), don't count.

Mon, 12/02/2013 - 16:02 | 4207336 insanelysane
insanelysane's picture

You need to sell the sizzle to the sheeple.

Mon, 12/02/2013 - 16:38 | 4207524 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

And I'll give you three guesses as to who will take credit for the drop and the first two(like the 1.3 million), don't count.

I need just one and he is too busy playing basketball to perform his job.

Mon, 12/02/2013 - 17:02 | 4207628 SamAdams
SamAdams's picture

Basketball?  Is that what the Larry Sinclair types are calling it these days?

Mon, 12/02/2013 - 15:47 | 4207280 NoDebt
NoDebt's picture

"As we have noted numerous times before; the "taper" is all about economic cover for a forced move the Fed has to make"

Yes, I know, I keep hearing that being said.  Let's see it happen.  And let's see it stick for more than 6 months.

What QE is breaking probably isn't as bad as what's going to break if they stop.

Mon, 12/02/2013 - 18:44 | 4207981 OneTinSoldier66
OneTinSoldier66's picture

She tapers me, she tapers me not

She tapers me, she tapers me not





Mon, 12/02/2013 - 15:49 | 4207283 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

A farcical feedback folly.

Mon, 12/02/2013 - 15:58 | 4207328 Tsar Pointless
Tsar Pointless's picture

Fucking funny.

Mon, 12/02/2013 - 15:49 | 4207285 RaceToTheBottom
RaceToTheBottom's picture

Any amounts the long term unemployed decrease, the disabilities and normal welfare ranks will increase.

Mon, 12/02/2013 - 15:50 | 4207286 semperfi
semperfi's picture

when everyone is "out of the labor force" the unemployement rate will be 0%

Mon, 12/02/2013 - 15:53 | 4207301 NoDebt
NoDebt's picture

They're only human, semperfi.  They're doing everything they can to get us there as quickly as possible.

You are young.  You will live to see that day.

Mon, 12/02/2013 - 15:51 | 4207290 yogibear
yogibear's picture

Knew of another able bodied person approved for Social Security disability.

More voters for the FSA, Obama phones, free healthcare,  free housing and food stamps.

See, the unemployed really doesn't matter Bernanke/Yellen will just print more and buy up all the trillions in US debt.

Bernanke/Yell and the Fed will have to increase QE from $85 billion/month to $100 plus billion/month.

Mon, 12/02/2013 - 16:08 | 4207373 insanelysane
insanelysane's picture

I've told this story a few times.  Wifey works in city in the northeast with mostly minority workers.  One person had early onset of alzheimer's and was making critical errors in their job and it was a person that worked for 35 years.  No one could figure out how to legitimately get the person SSI disability.  Seriously, it took almost a year to get the person any benefits because the SYSTEM isn't set up to handle legitimate cases.  In the interim, the company took it on the chin and gave the person menial tasks to do.

Mon, 12/02/2013 - 16:29 | 4207464 Nick Jihad
Nick Jihad's picture

Too bad they weren't a firefighter with a "back injury".

Mon, 12/02/2013 - 15:51 | 4207291 Keyser
Keyser's picture

And the 30 year Treasury rate was 8.5% in 1978... Mortgage interest rates were at 9%. A far different picture from today with the derivatives market looming in the background should the rates go up. 

Mon, 12/02/2013 - 15:50 | 4207292 NOTaREALmerican
NOTaREALmerican's picture

Have the newly unemployed explored the exciting new field of Delivery Drone repairman?  

My TBTF Zombie has student loan funds available now.    Operators are standing by.

Mon, 12/02/2013 - 15:52 | 4207299 Keyser
Keyser's picture

Only if the drones are equiped with Hellfire missiles. 

Mon, 12/02/2013 - 15:50 | 4207295 Al Huxley
Al Huxley's picture

1) Deficits won't be shrinking for any extended period

2) I don't think its technicalities that are breaking the market so much as rampant corruption and regulation intended to support rather than prevent that corruption

3) Ben or Janet or Barry just need to tell the public that the debt's not being monetized and then there's no problem

4) The rest of the world can go fuck themselves.


So Ben, Janet, carry on, everything's under control...

Mon, 12/02/2013 - 15:55 | 4207312 NoDebt
NoDebt's picture

"4) The rest of the world can go fuck themselves."

You can't see it through the internet but I'm having a good belly laugh because that's exactly the phrase that popped in my head when I read it.

Man, if we're wrong about this, our cynical old asses are gonna get TORCHED on this one.

Mon, 12/02/2013 - 16:02 | 4207333 Al Huxley
Al Huxley's picture

Yes, very true - maybe it really IS different this time...

Mon, 12/02/2013 - 17:00 | 4207622 GreatUncle
GreatUncle's picture

In all previous cases the abilitiy to kick the can down the road was possible...

It will be different this time if the can no longer be kicked any further.


Mon, 12/02/2013 - 17:10 | 4207669 SamAdams
SamAdams's picture

These guys know the ponzi is coming to an end.  That is why they ran up the derivatives, to cash out.  Their derivatives are senior to creditors (savings in a bank).  The ponzi started at $1.00, which is now worth maybe $.04.  This is known as the end.

It won't be the end of the corporation, just an end to your bill of rights explicitly.  A complete fascists socialist makeover from the land of the free to the land of the slave.

Mon, 12/02/2013 - 18:53 | 4208004 OneTinSoldier66
OneTinSoldier66's picture

"Yes, very true - maybe it really IS different this time..."


Yep. And FDR didn't outlaw the money in use at the time of his reign by dictatorial executive order, AND, there was no Great Depression.


Those are just myths! ;-)

Mon, 12/02/2013 - 15:53 | 4207306 I am Jobe
I am Jobe's picture

I thought the AMZN Drone delivery might create some futuristic jobs, So everyone can qualify to fly drones in the future 

Mon, 12/02/2013 - 15:57 | 4207318 walküre
walküre's picture

What does it matter anymore? The Kremlin had fantastic business sense which is why there was no unemployment in the old Soviet Union. The news was always positive. The people that were asked for their opinion, had a gun held to their head to confirm just how happy everyone was.

Stick a fork in it. We're done.

Mon, 12/02/2013 - 15:57 | 4207319 Uchtdorf
Uchtdorf's picture

Every day we get closer to seeing if some new .gov program or regulation is going to be that proverbial camel back-breaking straw. We producers will eventually just stop producing.

Mon, 12/02/2013 - 16:11 | 4207384 I am Jobe
I am Jobe's picture

USSA is a Nation of Laws and Regulations. More power to Corp and Lobbysists.

Waiting for the Happy Pill truck to arrive 


Mon, 12/02/2013 - 16:11 | 4207385 yogibear
yogibear's picture

Why produce when the government will take more of it and distribute it to the FSA?

Communism/socialism in the making. Eventually the government tells you to share housing.

Belong to the communist party and the union to get more.

Mon, 12/02/2013 - 15:57 | 4207322 Nex
Nex's picture

Nov 29-Dec 1, 2013 –
Unemployed: 8.3%
Interesting thing is compared to Dec 1. 2011.(2012 is huge manipulation, presidential elections)-
Unemployed: 8.5%
For 2 years:0.2% improvement. Not bad for $1 trillion print and ZIRP.


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