An In Depth Look At The US Labor Markets

Tyler Durden's picture

Submitted by Shane Obata of Triggers

An in depth look at the US labor markets

People love to talk about how statistics can be used to prove any point.

I don’t entirely disagree with that claim, but it really depends on both the perspective – or time frame – and the source of the data set.

My research typically involves trying to separate the meaningful data from the nonsense.

In general, people are increasingly absorbed with short term results.

What’s more important is long term trends.

Some of my favourite chartists such as @lanceroberts, @not_jim_cramer, @m_mcdonough, @zerohedge, @greekfire23, @cigolo, and @minefornothing are good examples of economic analysts who don’t try to fool you with the data.

Often time they will present their data over long time frames to make comparisons with other periods possible.

This can help us to identify similar expansionary or contractionary periods or inflection points.

Credible sources are essential but so is doing your own research and making your own conclusions.

But that’s the beauty of economic data – regardless of the author’s opinion, it’s open to interpretation. (Even though most of the time one side is right and the other is wrong - see: santelli and liesman, respectively.)

Back to the matter at hand…

Today we’re going to look at an area of the economy that I’ve been meaning to write about for a while – the US labor markets.

Despite that fact that US GDP is incredibly reliant on consumption – approximately 68% of US GDP is comprised of personal consumption expenditures…

Some could argue that consumption’s actual usefulness to an economy is not as great as it may seem.

For example, if someone buys a stuffed bear every day for a year straight then is that really going to improve the economy in the long run?

When thinking about the quality of an economy or a business venture isn’t sustainable growth what’s important?

In my opinion, wages are what drive an economy.   

Higher real wages allow people to save and then invest without taking on debt.

Unfortunately for the US economy, debt is up and incomes and savings are down.

Moreover, these trends have been in play for a long time.

The personal savings rate, GDP (yoy), and personal income (yoy) peaked in the 1970s.

On the other hand, household credit market debt outstanding is barely off of its peak.

As a result of inflation and lower real median household incomes, individuals are taking on debt in order to maintain the same standard of living.

And that’s why the CPI i?s? ?a? ?j?o?k?e? ?   cannot be considered an accurate gauge of the cost of living - because it no longer measures real inflation.

Let’s get back to the labor markets.

Every month, all the m?e?t?e?o?r?o?l?o?g?i?s?t?s?  economists make projections for the nonfarm payroll number.

Regardless of details and long term trends, what’s important to the market is whether or not it beats analysts’ estimates.

Despite a lot of talk about this number, job growth has not improved in a meaningful way for the past few years.

Furthermore, since the mid-1980s, the rate of increase (yoy) has been in a downtrend.

What’s more is that the number of jobs that the US has gained since the financial crisis has not consistently kept pace with population growth.

In other words, employment is only being created by the incremental demand caused by population growth.

This is reflected in the employment/population ratio – which has not increased since 2010.

But if the employment rate is flat then why is the unemployment rate falling?

To answer that question let’s first define the unemployment rate as: the number of unemployed persons / the labor force.

In order for this rate to fall one of two things needs to happen.

1)    The number of unemployed persons falls

2)    The number of people in the labor force falls

So why is it falling then?

Because of the number of people not in the labor force is increasing.

From 1980 to the present that number has increased from 60 million to 92 million.

What’s more is that people are now leaving the labor force at a faster pace than they were from 1980-2001 and from 2001-2010.

Let’s move on to another important consideration: the quality of the jobs that have been added.

For the most part, everyone is obsessed with the number of jobs.

That said, one could argue that the quality of those jobs is more important.

That’s because high quality and not low quality jobs are going to help the US government to bring in more tax revenues.

In a country where entitlements are growing at an incredible pace, that fact cannot be overlooked.

Unfortunately, the US is not adding enough of what David Stockman referred to as “breadwinner jobs”.

The paper that this chart was taken from can be found here; it’s one of the best analyses of the labor market that you might come across.

So what kind of jobs have been added?

Mostly low quality ones such as retail salespeople, cashiers, food prep workers, etc.

These are kind of jobs that 1) are vulnerable to technological advancement.   

Note: as technology continues to improve it’s likely that many people will lose their jobs to robots.

2) won’t generate enough tax revenues to support growing social benefit payments.

Note: to put to rate of increase in social obligations in perspective, social security now costs 8x what it did in 1980.

And 3) aren’t full time.

Note: during the financial crisis, full time employment as a % of the labor force fell dramatically.

It has recovered since then but it’s still at a depressed level.

On the other hand, part time employment as % of the labor force rose during the financial crisis and is still at a very high level.

Another concerning trend is that weakness in the labor markets is more apparent among the young.

The following graph shows that only the only age group that only those 55 and older have added net jobs since 2007.

Furthermore, since there are fewer quality jobs available overall – those jobs are often held by more experienced persons.

Both of these trends are reflected in lower and higher labor force participation rates for the young and old respectively.

As you can see in the following chart, participation rates for those 16-24 are projected to decrease through to 2020.

In contrast, the labor force participation rates for those 55 and older are projected to increase.

Now that we’ve gone over what’s really happening in the labor markets, let’s examine some of the misconceptions that are commonly held about them:

1) assumption: a falling unemployment rate is indicative of an improving labor market.

Reality: the unemployment rate – especially the U3 rate – is not a good measure of the health of the labor markets for reasons that we alluded to earlier.

On the other hand, the average duration of unemployment seems to be more relevant.

Currently, the average duration of unemployment in the US is 35 weeks.

To put this in perspective, from 1980 until the financial crisis, the highest the number reached was in the low 20s.

What this means is that those who are unemployed are staying unemployed for longer.

2) assumption:  a reduction in initial jobless claims is indicative of an improving labor market.

Reality: initial jobless claims are in a downtrend because – as Lance Roberts reports here - businesses are hoarding their employees

3) assumption: if the US economy keeps adding 200,000 jobs every month then everything will be fine in the labor markets

Reality: at the current pace of growth, “it would take until December of 2018 to return to pre-recession employment levels while also absorbing the people who enter the labor force each month”

In conclusion, the labor markets are not as healthy as some people think they are.

Employment seems as though it may have peaked for this cycle.

And the so-called “recovery” in the labor markets is much weaker than past recoveries were.

These trends are probably reflective of 1) changes in societal labor trends - such as the move away from manufacturing jobs and towards retail jobs.

And 2) a structurally weak US economy whose growth is being held back by debt.

Next time you hear t?h?e? ?w?e?a?t?h?e?r?m?a?n?  Joe Lavorgna talking about how good the labor markets are, consider the long term trends and go over all of the details before you draw a conclusion.

*And don’t forget to support #teamphil.

Shane Obata @sobata416

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NoDebt's picture

That is every chart offered up on ZH in the last 3 months crammed into one article.  Well done.  You get the gold star on your lunch box for that.

Mister Kitty's picture

I asked my poor old mother if there was any hope.  She hit me in the nuts with a bag of potatoes.  Ouch.

Dr. Engali's picture

You went from stud to spud all for asking a silly question.

verbot's picture

all those fancy charts to tell you to follow market action. Any morality driven investor is mired in gold, waterfilters, heirloom seeds,and wondering why the world has not gone to jesus. Poor planning at best not to include the guliable in a business model so you know if you are here commenting you are the fodder. Prove me wrong tylers, this is not the gathering of equals this is the culling lot.We are the also rans at best and the rest is shills.Imho.

DaddyO's picture

Everyone is on the curve somewhere, I'd rather be here with my eyes wide open...thank you very much.


joego1's picture

Ha! Do you look like Danny DeVito?

ChargingHandle's picture

Agreed.  Data junkie here. Well done ZH. 

Stuck on Zero's picture

That chart of real personal consumption expenditures vs GDP has been proven fallacious a hundred times.  Consider that total earnings of all Americans amounts to about 60% of GDP.  Then subtract taxes and mandated expenses.  The real number is about 40%-50%.


venturen's picture

where is the chart of the aveage Goldmand Sach and JP Mogran bonus via FED printed dollars?

Dr. Engali's picture

Who needs jobs when the fed is printing us into prosperity? Didn't you hear? Household "wealth" was up another 3 trillion dollars last quarter. Sure bacon is up to $10 a pound and we are in debt up to our ears, but who cares? We are bloody stinking rich. Just sit back, pop a hot pocket in your mouth, enjoy a piss water domestic beer, and watch your hedonically adjusted deflationary flat screen teevee.

NoDebt's picture

I saw what you did there.  You added the Hot Pocket comment before I could reply (which was what I was going to suggest).  Well played.

You realize, of course, we're all going to Hell when this is over, right?  OK.  Just checking.

Dr. Engali's picture

Going to hell? Sometimes I wonder if we are in some version of it already.

NoDebt's picture

I'll put it to you this way.... if our assets hadn't recovered off the lows at break-neck speed the last 5 years (to new all-time-highs) how much more pissy would we be about things right now?  What if we were at only, say, Dow 10-11K?

If you're on the bubble, like me, where your assets matter about as much as your income, that's a damned sticky question to answer honestly.


pitz's picture

How many people think the current levels are really going to hold?  Q1 earnings are going to be awfully interesting and reality could come back into the market. 

Dr. Engali's picture

"and reality could come back into the market."

There is your first mistake, you believe we still have markets.

AlaricBalth's picture

We are Doc. Dante's Fourth Circle, dedicated to greed.

… I saw multitudes
to every side of me; their howls were loud
while, wheeling weights, they used their chests to push.
They struck against each other; at that point,
each turned around and, wheeling back those weights,
cried out: Why do you hoard? Why do you squander?

The contrast between these two groups leads Virgil to discourse on the nature of Fortune, who raises nations to greatness, and later plunges them into poverty, as she shifts "those empty goods from nation unto nation, clan to clan." This speech fills what would otherwise be a gap in the poem, since both groups are so absorbed in their activity that Virgil tells Dante that it would be pointless to try to speak to them – indeed, they have lost their individuality, and been rendered "unrecognizable" (Canto VII).

Caviar Emptor's picture

Dr Engali...we are printing our way to utopia, and yet something very crucial is missing: buying power (crushed by rising prices plus declining real incomes).. The more we print, buying power declines. But we can't stop else the apple cart topples
And so the next phase of the plan should be to narcotize the masses.
So we're legalizing pot and easing back the war on drugs.
Huxley called it in brave new world: soma pills kept everyone happy!

Escrava Isaura's picture

Outstanding Caviar! By the way, check this comment at the link below. I found 'some aspect' of it very telling... Actually, I made an observation below it. Anyway, check it yourself:


Aductor's picture

Interesting read. However, I don't think the following on the unemployment rate is entirely correct:

"In order for this rate to fall one of two things needs to happen.

1)    The number of unemployed persons falls

2)    The number of people in the labor force falls"


Given the definition, the rate will fall if either # of unemployed falls _or_ the number of people in labor force _increases_ (the denominator will increase) _or_ the number of unemployed falls at the same time as the number of
people in the labor force falls. In the latter case (our situation at hand), the decrease in the numerator is percentage wise larger than the fall in the denominator (people leaving the labor force), so the result is a decrase of the total rate.

q99x2's picture

Satoshi nakamoto has surfaced in Temple city California.

I was out all day so I guess everyone already knows.

Would have thought it would have taken top post.

NoDebt's picture

It was quickly buried in an avalance of new articles.

zionhead101's picture

"This is NOT the Satoshi that Bonestar was looking for."

Had it been the Satoshi, that ZH was looking for, we would have had dozen's of posts for day's on end, ... just like Ukraine.

Is Bonestar a Tyler? Fuck Yes.

Colonel Klink's picture

Bonestar has already commented ad naseum.

Cacete de Ouro's picture

It's a blast in one way, because this is my last comment. Signing off from Salvador, Bahia.

I might resurrect myself at a future point, if the ZH vibe permits, but for now, Tchau.

Cacete de Ouro,
signing off,
During Carnaval,

Anusocracy's picture

Come to Michigan, the Great Lakes are 91% frozen over - a record for March, Feb averaged nine degrees below normal, and so far, March is averaging almost 20 degrees below normal.

Someone calculated the volume of ice on the Great Lakes at 19.9 cubic miles.

AlaricBalth's picture

Must be a result of that Global Warming phenomenon I've been hearing so much about from our trusted media.

BringOnTheAsteroid's picture

You know what your problem is. You're taking the term "warming" too literally.

Taint Boil's picture



Cubic Mile of Oil:

Speaking of cubic miles - the world consumes just over 1 cubic mile of oil per year. There are about 43 cubic miles of proven reserves so far.

To replace 1 CMO [cubic mile of oil] a year you would need to build:

4 Three Gorges Dams developed each year for 50 years, or

52 nuclear power plants developed each year for 50 years, or

104 coal-fired power plants developed each year for 50 years, or

32,850 wind turbines developed each year for 50 years, or

91,250,000 rooftop solar photovoltaic panels developed each year for 50 years.




q99x2's picture

I will not be a labor (w)hoaredee. For the labor hoarders.

Up my FAFSA Yellen Motha Fuckka.

pitz's picture

No mention of all the foreigners working in America on the H-1B visa.  There are over a million of them, and they're being used by big finance and many high tech companies to displace qualified American workers.  The tech industry for instance hasn't really hired American workers in any significant numbers since the last tech bubble, and routinely discards thousands of resumes without even human consideration.  Even top talent can't find jobs with the tech sector employers while they're hiring foreigners by the tens of thousands.  The destruction of purchasing power, and the amount of idle talent out there is incredible.  Not only creating personal tragedies, but denying the nation the fruits of their intelligence, imagination, and ingenuity.

BTW, the 2008 collapse was largely caused through the "jobless recovery" (really, not even a recovery at all) in the wake of the tech sector collapse of 2001-2002.  So just getting back to 2008 levels won't be good enough in terms of reviving the economy.  A good first step would be to shut down the H-1B and start the deportations. 

prains's picture

i think you should be first.....

<--vee also neeeds to burn za books, YA !


buts whatever you do make sure to get rid of your base that supports the ponzi, it's working so well in Japan, if you like your Ponzi you can deport your Ponzi (or export) thru military conquest, your choice. Freedom Fires For All !!! 

Go uSA or is it nSA, can't remember anymore?

ebworthen's picture

But where would high tech get their slaves?

Don't you know Wall Street needs those Ivy League graduates for HFT trading?

My God man!  Next you'll be complaining about the ACA, low wages, lack of production, the rape of The Constitution, and the transformation of the U.S.A. from a Consitutional to a Banana Republic!

Colonel Klink's picture

LaVorgna, what a CUNT!

ebworthen's picture


He makes groundhogs look noble and tapeworms look civilized.

Hohum's picture

I loved Crazy Joe LaVorgna on Seinfeld.

TheRideNeverEnds's picture

I dont really think it matters to the "market" at this point.  Tomorrow when the number comes out (good or bad) we will go limit up; straight past 1900.  

Atomizer's picture

The Google Love Boat. Will it turn into a Gillian Island episode?



Throwinghammers's picture

So by definition our economy is doing exactly what it's supposed to do!! consume:


  [kuhn-soom] Show IPA verb (used with object), con·sumed, con·sum·ing.
1.To destroy or expend by use; use up. eat or drink up; devour. destroy, as by decomposition or burning: Fire consumed the forest. spend (money, time, etc.) wastefully. absorb; engross: consumed with curiosity.


Kriya144's picture

Anyone else find this really depressing?  I couldn't even bring myself to read it all...  my eyes began to glaze over at all the pretty graphs and terrible, terrible news.  

Kriya144's picture

Anyone else find this really depressing?  I couldn't even bring myself to read it all...  my eyes began to glaze over at all the pretty graphs and terrible, terrible news.  

Fuh Querada's picture

Your "research" is only as reliable as the raw data you use to plot those fancy graphs.

ebworthen's picture

He's likely using BLS, CBO, and FED data; which means it is worse than it appears.

But by all means, please go long equities.

JPMorgan's picture

I consider 'research' not just the gathering of data points and looking at graphs.

It's important to get out and about and talk to the people on the ground and try and get some feel for what's going on. 

LaurentDeLyon's picture

personnally LaVorgna vs LaMarmot, I'm fan !

perso LaVorgna vs LaMarmotte j'adore !

Bioscale's picture

Chart porno. I mean the author have done a great work, but is this all needed to comprehend that US is fucked? Or should this convince investors NOT to invest in US companies or something similar?